Block Drug exchanged 250 shares of Peabody Holding common stock, which Block Drug was holding as...
Block Drug exchanged 250 shares of Peabody Holding common stock, which Block Drug was holding as an investment, for equipment from Wachovia. The Peabody Holding common stock, which had been purchased by Block Drug for $59 per share, had a quoted market value of $121 per share at the date of exchange. On Wachovia's records, the equipment had a cost of $73,700, a book value of $18,500, and the city tax assessor has valued it at $35,000 for purposes of assessing personal property taxes.
Based on the information given above, at what amount should Block Drug record the equipment received?
Homework Answers
Block Drug's fair value of shares = 250 shares @ $59 = $14,750
Block Drug's fair value of shares = 250 shares @ $121 = $30,250
Block drug will record the asset acquired at the fair value of the asset transferred, ie $30,250. Therefore
Equipment will be debited by $30,250
Investment will be credited by $14,750
Balance $15,500 will be recorded as a gain.
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