Question

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 20,000
Accum Depr—Buildings 32,000
Accum Depr—Equip 30,000
Common Stock 56,000
Additional Paid-In Capital 125,000

Based on the preceding information, what was the book value of Conservative's assets transferred to Spin Company?
A) $243,000
B) $263,000
C) $221,000
D) $201,000

Answer 1

The book value of Conservative Corporation's assets transferred to Spin Company is calculated by adding the assets and subtracting accumulated depreciation, resulting in $201,000.

Step-by-step explanation:

To calculate the book value of the assets transferred to Spin Company, we need to add the values of all the assets and then subtract the accumulated depreciation. The accounts payable represent a liability and will not be included in the assets calculation.

Here are the calculations for the total assets transferred:
Cash and receivables: $23,000
Inventory: $15,000
Land: $30,000
Buildings (net of depreciation): $100,000 - $32,000 = $68,000
Equipment (net of depreciation): $95,000 - $30,000 = $65,000

Adding these together, we get:
Total assets = $23,000 + $15,000 + $30,000 + $68,000 + $65,000 = $201,000.

Thus, the book value of Conservative Corporation's assets that were transferred to Spin Company is $201,000. Therefore, the correct answer is D) $201,000.