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Jones Company obtains all of the common stock of Hudson, Inc., by issuing 50,000 shares of its own stock. Under these circumstances, why might the determination of a fair value for the consideration transferred be difficult?

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jepessoa

Answer:

Sometimes it is not easy to determine the fair market value of stocks, for example:

  1. If Jones is a recently created corporation and the 50,000 shares are their IPO.
  2. Jones might not be a publicly traded corporation, it might be a closely held corporation so there is no fair market value
  3. If the 50,000 shares represent a huge increase in the number of outstanding shares it might cause a great variation in the price
  4. Jones's stock might have experienced large fluctuations in recent times
  5. etc.

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