Hierarchy of recording stocks

(Issuance of stocks for assets other than cash)

1. FV of asset or service received

2. FV of stocks issued

3. Par value of shares issued

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FMV

Scenario: Mr. X has a business (sole prop). However, when he met Mr. Y and Mr. Z, they all decided to join forces and form XYZ Company. All the partners agreed that Mr. X will invest equipment in the firm.

How do you record this transaction?

Remember: When a non-cash asset like equipment is transferred to the XYZ Company from Mr. X’s (sole prop) business, its fair market value will be used in recording the investment.