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.
-Based on the preceding information,Regan Company will report

Question

Quizplus · Accepted Answer

When Devon Company transferred its assets and cash to Regan Company for 15,000 shares of Regan's $10 par value stock, the total value of the assets transferred was $480,000 ($100,000 for land + $200,000 for building + $180,000 for cash). 
The building had a book value of $160,000 after 3 years of straight-line depreciation ($180,000 - [($180,000 / 30 years) x 3 years]), but its fair value was $200,000. This means there was a $40,000 increase in the value of the building that was not reflected in the book value. 
Regan Company will record the land and building at their fair values of $100,000 and $200,000 respectively, and the cash at its face value of $180,000. 
The total value of the assets transferred, which is also the total value of Regan Company's issued shares, is therefore $480,000. 
The par value of Regan Company's 15,000 shares is $150,000 (15,000 x $10), so the remaining $330,000 ($480,000 - $150,000) is considered additional paid-in capital. 
Therefore, Regan Company will report additional paid-in capital of $162,000 ($330,000 / 2) since there are 15,000 shares outstanding of $10 par value; par is being allotted and remaining is coming through as extra.

During Its Inception,Devon Company Purchased Land for $100,000 and a Building