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Chapter 15: Question 9Q (page 810)

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?

Short Answer

Expert verified

Stock valuation is an important factor to consider while making stock trading decisions. Using this strategy, the company can learn about the worth of stocks traded in the market.

Step by step solution

01

Meaning of Stock Valuation

The process of determining a stock's current (or expected) worth at a specific point in time is known as stock valuation. Absolute and relative valuations are used for valuing equities.

02

Different bases for Stock Valuation

When stock is issued in exchange for services or property other than cash, the property or services should be recorded at their fair valueor the fair value of the shares issued, whichever is more easily determinable.

If neither is easily determined, the board of directors usually decideson the value to be assigned.

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Most popular questions from this chapter

Kaymer Corporation issued 300 shares of \(10 par value ordinary shares for \)4,500. Prepare Kaymer’s journal entry.

On February 1, 2017, Buffalo Corporation issued 3,000 shares of its \(5 par value common stock for land worth \)31,000. Prepare the February 1, 2017, journal entry.

Describe the accounting entry for a stock dividend, if any. Describe the accounting entry for a stock split, if any.

Statements of Financial Accounting Concepts set forth financial accounting and reporting objectives and fundamentals that will be used by the Financial Accounting Standards Board in developing standards. Concepts Statement No. 6 defines various elements of financial statements.

Instructions

Answer the following questions based on SFAC No. 6.

  1. Define and discuss the term “equity.”
  2. What transactions or events change owners’ equity?
  3. Define “investments by owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by owner investments?
  4. Define “distributions to owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by distributions?
  5. What are examples of changes within owners’ equity that do not change the total amount of owners’ equity?

Ravonette Corporation issued 300 shares of \(10 par value ordinary shares and 100 shares of \)50 par value preference shares for a lump sum of \(13,500. The ordinary shares have a market price of \)20 per share, and the preference shares have a market price of $90 per share.

Instructions

Prepare the journal entry to record the issuance.
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