Question

On April 7, 2018, Sanders, Inc. exchanged 4,000 shares of its $25 par value treasury common stock for a patent owned by Masset Co. The treasury shares were acquired in 2017 for $90,000. At April 7, 2018, Sanders, Inc.'s common stock was quoted at $36 per share, and the patent had a carrying value of $115,000 on Masset's books. Sanders Inc. should record the patent at

Answer 1

Number of shares exchanged =4000.

Par value of the shares=$25.

Cost of acquisition of treasury shares=$90,000.

Cost of these shares in the market on the date of recording of patent =$36 per share.

Cost of the patent in Sanders, Inc.=$115,000.

Fair value of the stock on the date of transfer of these shares to Masset's should be treated as cost of the patent.

i.e., $36*4000=$144,000, reason is, in case these shares are sold ny Masset's on the same date of acquistion, he would have earned the above said amount, hence the patent should be recorded at $144,000.