Problem

Incomplete Data on Creation of SubsidiaryThumb Company created New Company as a wholly own...

Incomplete Data on Creation of Subsidiary

Thumb Company created New Company as a wholly owned subsidiary by transferring assets and accounts payable to New in exchange for its common stock. New recorded the following entry when it received the assets and accounts payable:

Cash

3,000

 

Accounts Receivable

16,000

 

Inventory

27,000

 

Land

9,000

 

Buildings

70,000

 

Equipment

60,000

 

Accounts Payable

 

14,000

Accumulated Depreciation- Buildings

 

21,000

Accumulated Depreciation- Equipment

 

12,000

Common Stock

 

40,000

Additional Paid-In Capital

 

98,000

Required

a. What was Thumb’s book value of the total assets transferred to New Company?


b. What amount did Thumb report as its investment in New after the transfer?


c. What number of shares of $5 par value stock did New issue to Thumb?


d. What impact did the transfer of assets and accounts payable have on the amount reported by Thumb as total assets?


e. What impact did the transfer of assets and accounts payable have on the amount that Thumb and the consolidated entity reported as shares outstanding?

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