Question 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
Question 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
Question 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:
a. $45,000.
b. $35,000.
c. $25,000.
d. $10,000.
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:
a. $60,000.
b. $30,000.
c. $15,000.
d. $0.