Final answer:
Stock issued for noncash consideration should be reported at the fair market value of what is received or given. Investors expect dividends or capital gains as a return on their investments. Issuing stock increases capital while creating accountability to shareholders.
Step-by-step explanation:
When a stock is issued for noncash consideration, the transaction should be reported at the fair market value of the consideration given or the value of the consideration received, according to accounting standards. For example, if a company issues stock in exchange for a piece of machinery, the transaction will be measured at the fair market value of the machinery if it is more clearly evident than the fair market value of the stock being issued. This ensures that the value of the noncash transaction is appropriately reflected in the financial statements.
When a firm issues stock, it does so to raise capital, and the investors in turn expect a rate of return. This return can be through dividends or through capital gains, which is the increase in the value of the stock from the time it is bought to the time it is sold. Issuing stock entails giving up a portion of ownership and becoming accountable to shareholders, contrasting with borrowing methods like loans or bonds that do not dilute ownership but require fixed repayments.