Question

Indicate the procedure for recording the issuance of 10,000 shares of $10 par value common stock for a patent for Marlowe Company, in various circumstances: Marlowe cannot readily determine the fair value of the patent, but it knows the fair value of the stock is $140,000

Answer 1

The issuance of 10,000 shares of $10 par value common stock for a patent should be recorded by debiting Patent for $140,000, crediting Common Stock for $100,000, and crediting Paid-in Capital in Excess of Par Value for $40,000.

Step-by-step explanation:

To record the issuance of 10,000 shares of $10 par value common stock for a patent when Marlowe Company cannot determine the fair value of the patent but knows the fair value of the stock to be $140,000, the following journal entries should be made:

• 
  
• Debit Patent for $140,000
• 
  
• Credit Common Stock for $100,000 (10,000 shares × $10 par value)
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• Credit Paid-in Capital in Excess of Par Value, Common Stock for $40,000 ($140,000 fair value - $100,000 par value)

This accounting treatment is based on the principle that when the fair value of non-monetary assets exchanged is not clearly determinable, the fair value of the stock issued is a more reliable measure of the transaction's value.