Question

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?

Answer 1

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.