Acquiring Assets with Stock
The term acquiring assets with stock is used to describe the purchase of assets such as plant, property and equipment by a company through the issuance of securities. In order to value the assets purchased, accountants will use either the market value of the securities, or the appraised value of the asset acquired.
Companies have the ability to purchase assets such as plant, property and equipment in exchange for securities such as common stock. When this occurs, the cost of the property acquired should not be determined using the par value of the security. The acquisition price should be determined using one of two methods:
- Market Price: if the company's stock is actively traded, a market value of each share can be readily determined. This market value should be used as a cash equivalent for each share issued when acquiring the property.
- Appraised Value: if the company's stock is not actively traded, or it's not possible to determine its true market value, the appraised value of the asset should be used as the basis for the common stock's worth when recording the transaction.
Company A has entered into an agreement to purchase a widget processor from Company XYZ in exchange for 3,000 shares of common stock in Company A, which has a par value of $0.12 per share. At the time of the transaction, Company A's common stock was trading at $34.00 per share.
The journal entry to record the transaction would be:
|Equipment (3,000 shares x $34.00 per share)||$102,000|
|Common Stock (3,000 shares x $0.12 per share)||$360|
|Additional Paid-in Capital||$101,640|