On June 30, 2010, Rock, Ltd.exchanged 3,000 of Shale Corp.no par value common shares for a patent owned by Iller Co.The Shale shares were acquired in 2008 at a cost of $80,000.At the exchange date, Shale common shares have a fair value of $45 per share, and the patent had a net carrying value of $160,000 on Iller's books.Rock should record the patent at
A)$160,000.
B)$135,000.
C)$90,000.
D)$80,000.

Question

Quizplus · Accepted Answer

The fair value of the 3,000 Shale shares is ($45/share x 3,000 shares) = $135,000. Since Rock acquired the Shale shares in 2008 at a cost of $80,000, it has appreciated by a total of $55,000 ($135,000 - $80,000). Therefore, the cost of the patent to Rock is $160,000 - $55,000 = $105,000. Thus, Rock should record the patent at $105,000.