Question

When a closely held corporation issues preference shares for land, the land should be recorded at the

a. total par value of the shares issued.
b. total book value of the shares issued.
c. total liquidating value of the shares issued.
d. fair value of the land.

Answer 1

The land should be recorded at the fair value of the land when a closely held corporation issues preference shares for it, as it accurately reflects the land's current market value.

Step-by-step explanation:

When a closely held corporation issues preference shares for land, the land should be recorded at the fair value of the land. This is because the fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Recording land at its fair value provides a more realistic and market-relevant valuation of the land on the company's balance sheet, as opposed to its par value, book value, or liquidating value, which may not reflect the current market conditions.