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



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.