Good Company purchased a used machine by issuing 1,000 shares of its common stock to the seller.

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Good Company purchased a used machine by issuing 1,000 shares of its common stock to the seller. Good's stock is traded on the NYSE. On the date of purchase, its price was quoted at $42 per share, making the value of the stock issued to purchase the machine equal to $42,000 (1,000 shares 3 $42). Good had the machine appraised. The appraiser estimates its value at $50,000.
According to SFAC No. 2, amounts reported in published financial statements should satisfy the qualitative characteristics of relevance and reliability. You are an investor trying to decide whether to invest in Good common stock. Which value-$42,000 or $50,000-is more relevant to your decision to invest? Which is more reliable? Explain your answers to both questions. In your answer, describe what relevance and reliability mean and how each valuation is thus more relevant or more reliable than the other.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Financial Accounting Theory and Analysis Text and Cases

ISBN: 978-0470646281

10th edition

Authors: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey

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