Question

On July 1 of the current year, Trey Co. exchanged a truck for 25 shares of Deuce Corp.'s common stock. The fair value of this stock is not readily determinable. On that date, the truck's carrying amount was $2,500, and its fair value was $3,000. Also, the carrying amount of Deuce's stock was $50 per share. Trey cannot exercise significant influence over Deuce. What amount should Trey report in its December 31 current-year balance sheet as investment in Deuce? a. $2,500

b. $3,000
c. $0
d. Cannot be determined without the fair value of Deuce Corp.'s common stock

Answer 1

Trey Co. should report $3,000 as the investment in Deuce Corp's common stock on its balance sheet, which is the fair value of the exchanged truck.

Step-by-step explanation:

The question is asking what amount Trey Co. should report on its balance sheet for the investment in Deuce Corp's common stock, after having exchanged a truck for the stock when the fair value of Deuce's stock is not readily determinable. Since the fair value of the stock cannot be determined, the investment should be recorded at the fair value of the asset given up, which is the truck. In this case, the truck had a fair value of $3,000 at the time of the exchange. Therefore, Trey Co. should report $3,000 in its December 31 current-year balance sheet as investment in Deuce Corp.