Question

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.

Answer 1

Answer:

The answer is: C) No change in the reported net assets of Lead Corporation.

Explanation:

Lead Corporation can report consolidated financial statements including the parent company and all its subsidiaries (including this new one). Any transfer of assets wouldn´t change the total net assets of the corporation. Also, according to the Cost Principle in accounting, assets have to be recorded at their original purchase cost, not at their market value.