Situation The Perry Park Company (a privately-held company) was searching for a way to expand its operating capacity even though it was short of cash. The president of the company was playing golf and mentioned his concern to his playing partner, who owned some land and a building, and was interested in disposing of them. After some negotiation, the two agreed to swap the land and building for shares in the company. The president of the company has asked you how to account for this transaction, including whether the transaction qualifies as an exception to the general rule to use fair value and the value to place on the transaction and its components.
Directions
1. Research the related generally accepted accounting principles and prepare a short memo to the president. Cite your references and applicable paragraph numbers.
2. Does this situation create ethical issues?