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    Advanced Accounting Creation of New Subsidiary

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    Creation of New Subsidiary
    Eagle Corporation established a subsidiary to enter into a new line of business considered to be substantially more risky than Eagle's current business. Eagle transferred the following assets and accounts payable to Sand Corporation in exchange for 5,000 share of $10 par value stock of Sand:

    Cost Book Value

    Cash $ 30,000 $30,000
    Accounts Receivable 45,000 40,000
    Inventory 60,000 60,000
    Land 20,000 20,000
    Buildings 300,000 260,000
    Accounts Payable 10,000 10,000

    Required
    a) Give the journal entry that Eagle recorded for the transfer of assets and accounts payable to Sand.
    b) Give the journal entry that Sand recorded for receipt of the assets and accounts payable from Eagle.

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    Solution Preview

    (a)

    Investment in Sand 465,000
    Cash 30,000
    AR 45,000
    ...

    Solution Summary

    The solution create a new subsidiary.

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