As a general rule, when a corporation issues capital stock for assets other than cash, it is said that the exchange should be valued at the fair value of the stock or the asset, whichever is more reliable.

Required
Write a short report that explains the reasoning behind this rule, including the concepts of watered stock and secret reserves. Give an example of a situation where the fair value of
(1) The stock or, alternatively,
(2) The asset is used to record an exchange.