S Corporation offered to issue 5,000 shares of its no par value common shares to another company in exchange for a building at a time when there were 1,000,000 shares already outstanding and were selling for $4.00 per share at the time. The owner of the building had the opportunity to sell it to a competing buyer for $26,000. However, because the seller wanted the S Corporation shares, S's offer was accepted. At what amount should the building be reported in S's financial statements?
A) $26,000
B) $10,000
C) $20,000
D) $16,000

Question

Quizplus · Accepted Answer

The building should be recorded at its fair market value which is $26,000, the amount the owner could have received from the competing buyer. However, since the S Corporation offered to issue 5,000 shares of its common stock that were selling for $4.00 per share at the time, the value of shares issued would be $20,000 (5,000 shares x $4.00 per share). Therefore, the building should be reported on S Corporation's financial statements at $20,000.

S Corporation Offered to Issue 5,000 Shares of Its No