Question

Warren Peace Bookstore issues a note with no stated interest rate in exchange for a building. In accounting for the transaction:

Multiple Choice

• The note is recorded at its face amount unless the fair value of the building is readily available.

• The building should be depreciated over the note’s term to maturity.

• Both the note and building are recorded at the fair value of the note or the fair value of the building, whichever is more clearly determinable.

• If fair values of the note and building are unavailable, the note should be recorded at its face amount.

Answer 1

The Correct answer is "Both the note and building are recorded at the fair value of the note or the fair value of the building, whichever is more clearly determinable"

Reason :

When an asset is acquired (in this case building) for other than cash, transaction should be recorded at fair value of the benefit received or fair value of the consideration given, whichever is more clearly determinable.