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 preceding information,Selvick Company will report additional paid-in capital of

Question

Quizplus · Accepted Answer

To find the additional paid-in capital, we need to calculate the fair value of the assets transferred to Selvick Company and compare it to the par value of the stock issued.

The land and building were originally purchased for $270,000 ($50,000 + $220,000). Over 4 years, the building has been depreciated by $44,000 per year ($220,000/20 years). Therefore, the book value of the building at the time of transfer was $220,000 - ($44,000 x 4 years) = $88,000.

The total fair value of the assets transferred is $338,000 ($250,000 + $50,000 + $38,000). Since Selvick issued 25,000 shares of $5 par value stock, the total par value of the stock is $125,000 ($5 x 25,000 shares).

Therefore, the additional paid-in capital is $213,000 ($338,000 fair value - $125,000 par value).

At Its Inception,Peacock Company Purchased Land for $50,000 and a Building