Question: Common stock is sometimes issued in exchange for property or personal services rather than for cash.
Such contributions are especially prevalent when a small corporation is first getting started. Potential owners
may hold land, buildings, or other assets needed by the business. Or, an accountant, attorney, or the like might
be willing to provide expert services and take payment in stock. This arrangement can be especially helpful if the
business is attempting to conserve cash. What recording is made if capital stock is issued for a service or an asset
other than cash?
Answer: The issuance of stock for an asset or service is not technically a trade5 but the accounting rules are
the same. The asset or the service received by the corporation is recorded at the fair value of the capital stock
surrendered. That is the equivalent of historical cost. It is a measure of the sacrifice made by the business to get
the asset or service. However, if the fair value of the shares of stock is not available (which is often the case for
new and smaller corporations), the fair value of the property or services received becomes the basis for reporting.