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In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred:
Cash and receivables 23,000 Inventory 15,000 Land 30,000 Buildings 100,000 Equipment 95,000 Accounts Payable Accumulated Depr
  

1. Based on the preceding information, what number of shares of $7 par value stock did Spin issue to Conservative?
A. 10,000
B. 7,000
C. 8,000
D. 25,000

*I know the answer is $8,000 but if you can please show computations for that answer.

3. Based on the preceding information, what amount did Conservative report as its investment in Spin after the transfer of assets and liabilities?
A. $181,000
B. $221,000
C. $263,000
D. $243,000

*I know the answer is $181,000 but if you can please show computations for that answer.​​​​​​​

4. Based on the preceding information, immediately after the transfer,
A. Conservative's total assets decreased by $23,000.
B. Conservative's total assets decreased by $20,000.
C. Conservative's total assets increased by $56,000.
D. Conservative's total assets remained the same.

*I know the answer is B but how do you get that answer?

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Answer #1

1. No. of Shares = Common Stock / Par Value

= 56000/7

= 8000 share

C. 8000

3.  what amount did Conservative report as its investment in Spin after the transfer of assets and liabilities.

A. $1,81,000

Cash and Receivables 23000
Add: Inventory 15000
Add: Land 30,000
Add: Buildings 100000
Less: Accumulated Depreciation 32000 68000
Add: Equipments 95000
Less: Accumulated Depreciation 30000 65000
Less: Accounts Payable 20000
Investment in Spin 181000
OR
Common Stock 56000
Add: Additional Paid-in Capital 125000 181000

4. Based on the preceding information, immediately after the transfer,

B. Conservative's total assets decreased by $20,000.

Investment in spin (Calculated in Previous Question) 181000
Less: Accounts Payable 20000
Conservative Total Assets 161000
So, Decrease in Conservative Total Assets =$181,000-$161,000 = $20,000
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