Chapter 6
Corporations: Contributed Capital and Dividends
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c) The accountant that handled the issue of shares for Sherm & Co. has sent a bill for $5,600.
The accountant has agreed to accept 550 common shares instead of cash. The company
could not readily determine the fair value of the shares. Record the transaction on June 9,
2016.
Date
Account Title and Explanation
Debit
Credit
Analysis
In the case of non-monetary exchanges of assets and services exchanged for issued shares a
corporation can choose to evaluate the fair value of shares issued with two options.
Option 1: Fair value of assets or services received
Option 2: Fair value of the shares issued
Think of a scenario when option 2 is preferred by accountants over option 1 and explain why.
AP-6B (
4
)
Flanders Inc. was formed on March 1, 2016. Upon formation, it issued 8,000 common shares
for $22 each and 5,500 preferred shares for $30 each. In addition to the initial share issuance,
the following share transaction occurred during the fiscal year.
Jun 7 Issued 1,000 common shares for $25 per share.
Aug 31 Issued 800 preferred shares for $33 per share.
Jan 9 Issued 2,500 common shares for $24 per share and 300 preferred shares for
$32 per share.
