Acquisition of Land in Exchange for Common Stock Accounting

by Lee Nichols

When a company does not have the cash to purchase land to expand, one option to acquire the land you require is to trade stock for the land. Accounting for the acquisition requires that you know the fair market value of the land and the value of your stock.

Fair Market Value

You may determine the fair market value — or FMV — of the land by researching area land-sale records, available at the local tax assessor's office. For example, if records show that land sold within the previous six months was averaging $1,000 per acre and you are receiving 1,000 acres in exchange for stock, the FMV of the land is $1 million.

Stock Value

When accounting for the exchange of stock for land, use the value of your company's stock when the trade occurs. Extending the example above, if your stock is currently trading for $100 per share, you must pay 10,000 shares to execute an even trade. If the stock that you are trading is worth less than the land, you must enter an additional line in your journal for "Additional Paid-in-Capital."

Journal Entries

When you enter an even trade transaction in your journal, enter a debit in your journal for the land for $1 million labeled "Debit Land" in the description. Enter in your journal a credit labeled "Credit Stock" for the common stock for $1 million. This provides the necessary journal entries for typically business accounting needs.

Additional Paid-in-Capital

If the stock is worth less than the land, you must account for that when you enter the transaction into your journal. You must enter an additional credit entry labeled "Additional Paid-in-Capital" for the difference.