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 stock, but it determines the fair value of the patent is $150,000

Answer 1

To record the issuance of 10,000 shares of $10 par value common stock for a patent for Marlowe Company, calculate the total value of the shares and determine the fair value of the patent. Depending on whether the fair value is greater or less than the value of the shares, record the issuance by debiting the Patent account and crediting the Common Stock account and the Paid-in Capital in Excess of Par account.

Step-by-step explanation:

To record the issuance of 10,000 shares of $10 par value common stock for a patent for Marlowe Company, you need to follow these steps:

1. Determine the fair value of the patent, which is $150,000 in this case.
2. Calculate the total value of the shares by multiplying the par value ($10) by the number of shares (10,000): $10 x 10,000 = $100,000.
3. If the fair value of the patent is greater than the value of the shares, record the issuance by debiting the Patent account for $150,000 and crediting the Common Stock account for $100,000 and the Paid-in Capital in Excess of Par account for $50,000.
4. If the fair value of the patent is less than the value of the shares, record the issuance by debiting the Patent account for its fair value ($150,000) and crediting the Common Stock account for the par value of the shares ($100,000) and the Paid-in Capital in Excess of Par account for the difference between the fair value and par value ($50,000).