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 4 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. 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:
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:
The attached Microsoft Word(r) provides detailed explanations for ...
The solution provides detailed explanations for the multiple choice questions.
Detailed explanations are provided, for the questions, on how to calculate straight-line depreciation, goodwill and fair value.