When an existing company creates a new subsidiary and transfers a portion of its assets and liabilities to the new entity:

Multiple Choice

The new entity records both the assets and liabilities it received at fair values.

The original company records a gain or loss on the difference between its carrying values and the fair values of the assets transferred to the new entity.

The new entity records both the assets and liabilities it received at the carrying values of the original company.

The original company records the difference between the carrying values and the fair values of the assets transferred to the new entity as goodwill.