![]() ![]() ![]() Two independent, certified and licensed appraisers are hired to provide appraisals of the real estate value. XYZ Corporation agrees to exchange 10,000 shares of company stock for a piece of unimproved real estate. It’s stock is not sold on a public stock exchange, and there is no ready market for the company’s stock at this time. XYZ Corporation is a small private company. We will assign that value to any shares of stock issued. If the stock being issued is NOT publicly traded, the entire transaction is the market value of the asset received. But this is how it’s done, regardless of the dollar amounts involved.Ģ. This is a rather unusual example because Microsoft’s par value is so low. To record the issue of 100,000 shares common stock in exchange Microsoft common stock is $0.00000625 par value per share, so they will record $0.63 in par value, with the remaining recorded as additional paid-in capital, as follows: The shares to cash the same day as the transaction. ![]() Since the 100,000 shares can immediately be sold on open market for $2,725,000, the seller can convert Would not have accepted Microsoft’s offer. On the other side of the coin - the seller (now stockholder) must also feel that $2,725,000 is a “fair” price for his/her real estate, or he/she But we do assume that the transaction is “fair” and “at arms length” and that neither party is under any particular pressure or duress to enter into this fair market value agreement. If Microsoft feels that the real estate is worth 100,000 shares, who are we to argue? Accountants just have to record the transaction.We don’t have to care if company management is making a good deal or not. We assign the market price of Microsoft stock to this transaction, because the stock is heavily traded on global stock markets, and the price is fixed by a very large market of investors. They give up 100,000 shares, in effect saying “we think the property we are purchasing is worth $2,725,000. On MaMicrosoft stock sells for $27.25 per share. exchanges 100,000 shares of company stock for a piece of undeveloped real estate. We will assign that value toĮxample: On MaMicrosoft Corp. If the stock being issued is publicly traded, the entire transaction is the market value of the stock given up. We apply the hierarchy in the following order.ġ. There is a specific hierarchy accountants must use to determine the overall value of such transactions. When a non-cash transaction occurs, we have to take a market value approach, and we try to identify the part of the transaction that has the most widely accepted market value. In some cases, the value of the property given up can easily be determined, making it easy to place a value on the stock transaction. Investments of various types (stocks, bonds, etc.) may also be exchangedįor shares of stock. Shares of one company’s stock can also be exchanged for shares of another company. ![]() Land, buildings, equipment, vehicles or other assets can be exchanged for stock. Sometimes stock is issued for something other than cash. It’s easy to value a stock sale for cash, since the cash paid fixes the actual value of the transaction. It is a violation of law to issue or record stock prior to receiving payment from investors. Stock must be paid for before it can be issued. But when preferred stock has a call price, that is the amount used, because it is the amount that would be paid to preferred stockholders if the corporation were to call and retire the preferred stock. If there is no call price, then you will use the par value. When calculating part g, you will use the CALL price of preferred stock. Donated Capital belongs to the Common Stockholders, unless otherwise stated in stockholders’ agreements. It’s easy to see how those 2 extra decimal places can make a big difference in accuracy when you are dealing with many shares of stock.] Donated Capitalĭonated Capital is a gift of assets to a company, usually by state or local governments, typically to induce a business to relocate Most publicly traded companies have millions, perhaps even tens-of-millions of shares of common stock. Accountants generally carry Dividend and EPS calculations out to 4 decimal places, for greater accuracy. [Note: This part simply follows the general format of a Retained Earnings statement. ![]()
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