Toussaint Company issued 10,000 shares of its common stock in exchange for merch

Question

Toussaint Company issued 10,000 shares of its common stock in exchange for merchandise that it will resell. The merchandise had originally cost the other party $250,000 and had a fair value of $300,000 on the date of the exchange. The retail value of the inventory is $520,000. Toussaint Company is not publicly traded and cannot precisely determine the fair value of its stock. It has used some industry averages, however, and applied Black-Scholes-Merton and estimates the fair value of its stock to be about $28 per share. At what amount should the inventory be recorded?

a. $250,000
b. $280,000
c. $300,000
d. $520,000

Explanation / Answer

A Share based transaction with a party other than employees of the organisation is recorded at one of thr following value whic is more readily determinable or available :

Or

In the given question , since the fair value of merchandise on date of exchange is known or readily available whereas , the fair value of the stock is only based on estimation by applying Black-Scholes-Merton . Thus , the inventory must be recorded at fair value on date of exchange ie $300,000.

Final Answer : The inventory be recorded at $300,000 (ie option c)

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