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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鈥檚 journal entry.

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

List possible sources of additional paid-in capital.

(Stock Split and Stock Dividend) The common stock of Alexander Hamilton Inc. is currently selling at \(120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is \)10; book value is $70 per share. Nine million shares are issued and outstanding.

Instructions

Prepare the necessary journal entries assuming the following

  1. The board votes a 2-for-1 stock split.
  2. The board votes a 100% stock dividend.
  3. Briefly discuss the accounting and securities market differences between these two methods of increasing the number of shares outstanding.

What is meant by par value, and what is its significance to stockholders?
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