Lester Company transferred the following assets to a newly created subsidiary, Mumby Corporation, in exchange for 40,000 shares of its $3 par value stock:
Cost Book Value
Cash $40,000 $40,000
Accounts Receivable 75,000 68,000
Inventory 50,000 50,000
Land 35,000 35,000
Buildings 160,000 125,000
Equipment 240,000 180,000
The following are the answers for Depreciation - how did they come up with those answers, if the questions doesn't give you more details?
Accumulated depreciation-Buildings 35,000
Accumulated depreciation-Equipment 60,000

The accumulated depreciation amounts for buildings $35,000 and for equipment $60,000 were obtained as the differences between the costs and the book values of the assets. The cost of a long-term asset is usually reduced to its book value by the total amount in the accumulated depreciation account. The accumulated depreciation account shows the progressive amounts set aside annually as a write-off of the asset, showing its use over the period in accordance with the accrual concept and matching principle. The accrual concept and matching principle require cost to be matched to the revenue it helps to generate.

Explanation:

Transferred Assets:

Cost Book Value Difference Explanation

Cash $40,000 $40,000 $0

Accounts Receivable 75,000 68,000 $7,000 (doubtful accounts)

Inventory 50,000 50,000 $0

Land 35,000 35,000 $0

Buildings 160,000 125,000 $35,000 (depreciation)

Equipment 240,000 180,000 $60,000 (depreciation)