French Company Sells Its Subsidiary, Spanish Company, to Italian, Inc

question 16

Multiple Choice

French Company sells its subsidiary, Spanish Company, to Italian, Inc.French has net assets of $50 million and Spanish has net assets of $5 million.The sales price is $2 million down and a 10% note for $4 million.Italian has the right to cancel over the next year and uses the deposit method.The proper accounting for this transaction by French Company is

• A)
• \(\begin{array} { l c }
• \text { Cash } & 2,000,000 \\
• \text { Notes Receivable } & 4,000,000 \\
• \text { Spanish } & 5,000,000 \\
• \text { Gain } & 1,000,000
• \end{array}\)
• B)
• Cash\(\quad2,000,000\)
• Deposit from Purchaser\(\quad2,000,000\)
• C)
• \(\begin{array} { l c }
• \text { Cash } & 2,000,000 \\
• \text { Notes Receivable } & 4,000,000 \\
• \text { Spanish } & 5,000,000 \\
• \text { Deposit from Purchaser } & 1,000,000
• \end{array}\)
• D)
• \(\begin{array} { l c }
• \text { Cash } & 2,000,000 \\
• \text { Notes Receivable } & 4,000,000 \\
• \text { Spanish } & 5,000,000 \\
• \text { Deferred Gain } & 1,000,000
• \end{array}\)

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