Multiple-Choice Questions Involving Account Balances
Select the correct answer for each of the following questions.
1. Topper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Topper had purchased the equipment with an expected life of 10 years four years earlier for $100,000 and has used straight-line depreciation with no expected residual value. At the time of the transfer, the subsidiary should record
a. Equipment at $72,000 and no accumulated depreciation.
b. Equipment at $60,000 and no accumulated depreciation.
c. Equipment at $100,000 and accumulated depreciation of$40,000.
d. Equipment at $120,000 and accumulated depreciation of $48,000.
2. Lead Corporation established a new subsidiary and transferred to it assets with a cost of $90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The transfer will result in
a. A reduction of net assets reported by Lead Corporation of $90,000.
b. A reduction of net assets reported by Lead Corporation of $75,000.
c. No change in the reported net assets of Lead Corporation.
d. An increase in the net assets reported by Lead Corporation of $25,000.
3. Tear Company, a newly established subsidiary of Stern Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in exchange for 7,000 shares of Tear’s $8 par value common stock. Tear should record
a. Additional paid-in capital of $0.
b. Additional paid-in capital of $84,000.
c. Additional paid-in capital of$144,000.
d. Additional paid-in capital of $204,000.
4. Grout Company reports assets with a carrying value of $420,000 (including goodwill with a carrying value of $35,000) assigned to an identifiable reporting unit purchased at the end of the prior year. The fair value of the net assets held by the reporting unit is currently $350,000, and the fair value of the reporting unit is $395,000. At the end of the current period, Grout should report goodwill of
a. $45,000.
b. $35,000.
c. $25,000.
d. $10,000.
5. Twill Company has a reporting unit with the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit’s net assets on Twill’s books is $575,000, which includes $90,000 of goodwill. The fair value of the reporting unit is $560,000. Twill should report impairment of goodwill of
a. $60,000.
b. $30,000.
c. $15,000.
d. $0.
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