Question

At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair value of $250,000.Based on the information provided, at the time of the transfer, Selvick Company should record

Answer 1

Answer:

Selvick company should record the building at $220,000 and accumulation depreciation of $44,000

Explanation:

The computation of deprecation is shown below:

Depreciation = (Original cost - salvage value) ÷ useful life

where,

Original cost is $220,000

Salvage value is 0

And, the useful life is 20 years

Now put these values to the above formula

So, the answer would be equal to

= $220,000 - 0 ÷ 20

= $11,000

And, the accumulated depreciation would be

= Depreciation × number of years

= $11,000 × 4

= $44,000

we ignored other information which is given in the question, as we have to compute the depreciation through Straight line method.

Hence, Selvick company should record the building at $220,000 and accumulation depreciation of $44,000