On June 30, 2020, Blue Ltd. exchanged 2,000 Ivy Corp. common shares for a patent owned by Jazz Corp. The Ivy shares were acquired in 2018 for $ 125,000. At the exchange date, Ivy common shares have a fair value of $ 80 per share, and the patent had a carrying value of $ 280,000 on Jazz's books. Blue should record the patent at
A) $ 280,000.
B) $ 160,000.
C) $ 155,000.
D) $ 125,000.

Question

Quizplus · Accepted Answer

The fair value of the Ivy Corp. common shares is $80 per share, which means that 2,000 shares are worth 2,000 x $80 = $160,000. This represents the cost of the patent to Blue Ltd. because it was exchanged for the Ivy shares. The carrying value of the patent on Jazz Corp.'s books is not relevant because the exchange was based on fair value. Therefore, Blue Ltd. should record the patent at $160,000.