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12 June, 13:58

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

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  1. 12 June, 15:42
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    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
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