Question

During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000.1. Based on the information provided, at the time of the transfer, Regan Company should record:(1) Building at $180,000 and no accumulated depreciation.(2) Building at $162,000 and no accumulated depreciation.(3) Building at $200,000 and accumulated depreciation of $24,000.(4) Building at $180,000 and accumulated depreciation of $18,000.2. Based on the information provided, what amount would be reported by Devon Company as investment in Regan Company common stock?(1) $312,000(2) $180,000(3) $330,000(4) $150,0003. Based on the preceding information, Regan Company will report(1) additional paid-in capital of $0.(2) additional paid-in capital of $150,000.(3) additional paid-in capital of $162,000.(4) additional paid-in capital of $180,000.

Answer 1

1. (4) Building at $180,000 and accumulated depreciation of $18,000

2. (1) $312,000

3. (3) additional paid-in capital of $162,000

Step-by-step explanation:

1. The useful life of building is 30 years and the Devon company transferred the building to Regan company after 3 years. The value of the building to Regan company is $180,000 and accumulated depreciation is [$ 180,000 - ($180,000 * 3 years / 30 years)

2. The investment is Regan company amount to:

Building $162,000 + Land $100,000 + Cash $50,000 = $312,000

3. The additional paid in capital of $162,000 is reported by the Regan Company which is the value of the building.