33) Other

Stock Issued for Other Than Cash

If a corporation has a limited amount of cash, but needs an asset or some services, the corporation might issue some new stock in exchange for the items needed. When stock is issued for noncash items, the items and the stock must be recorded on the books at the fair market value at the time of the exchange. Since both the stock given up and the asset or services received may have market values, accountants record the fair market value of the one that is more clearly determinable (more objective and verifiable).

For example, if a corporation exchanges 1,000 of its publicly-traded shares of common stock for 40 acres of land, the fair market value of the stock is likely to be more clear and objective. (The stock might trade daily while similar parcels of land in the area may sell once every few years.) In other situations, the common stock might rarely trade while the value of the received service is well-established.

To illustrate, let's assume that 1,000 shares of common stock are exchanged for a parcel of land. The stock is publicly traded and recent trades have been at $35 per share. The par value is $0.50 per share. The land's fair market value is not as clear since there has not been a comparable sale during the past four years.

The entry made to record the exchange will show the land at the fair market value of the common stock, since the stock's fair market value is more clear and objective than someone's estimate of the current value of the land:

Land (1,000 shares X $35)	35,000
Common Stock (1,000 shares X $0.50 Par)		500
Paid-in Capital in Excess of Par - Common Stock		34,500

Differences in Accounting for Stock Splits Vs. Stock Dividends

Stock Split	Stock Dividend
No transfer from retained earnings to paid-in capital	Transfer of market value or par value from retained earnings to paid-in capital
Par value per share is changed	Par value per share is not changed
Total par value is unchanged	Total par value is increased

2. Complete the following sentences

1. The proceeds from issuing common or preferred stock is reported as paid-in or contributed ____________.

2. A major section of stockholders' equity is ___________ earnings.

3. If a corporation has only one type of stock it will be __________ stock.

4. A corporation's income statement will not report a gain or loss from transactions involving its own ___________.

5. The cumulative amount of other ______________ income is reported as a separate amount within stockholders' equity.

6. A corporation's own stock that it has repurchased, but has not retired is _____________ stock.

7. At the time that a corporation's board of directors declares a cash dividend, a current ____________ is created.

8. When a small stock (not cash) dividend is declared, the _________ value of the new shares is transferred from retained earnings to paid-in capital.

9. A 100% stock dividend will provide stockholders with the same number of shares as a 2-for-1 stock _________.

10. A cash dividend is based on the number of __________________ shares of stock.

11. Stockholders' equity is the total ________ value of a corporation.

12. Stockholders' equity reports the owners' residual interest in the corporation's _________.

13. A major advantage of the corporation as a form of business is the stockholders' _________ liability.

14. The cumulative amount of the corporation's earnings minus the cumulative amount of dividends declared is a general description of __________ earnings.

15. A distribution of a part of a corporation's earnings to its stockholders.

16. A corporation might ___________ its retained earnings because of a future cash need.

17. A stock ________ will not cause a change in the balances of the stockholders' equity accounts.

18. A corporation that has omitted the dividends on its cumulative preferred stock needs to disclose that it has dividends in __________.

19. The difference in the number of issued shares of common stock and the number of outstanding shares of common stock is related to the number of shares of ___________ stock.

20. Preferred stock will have preferential treatment over common stock in liquidation and _____________.