Plant Company Owns 80% of the Common Stock of Surf

question 22

Multiple Choice

Plant company owns 80% of the common stock of Surf Company. Surf Company also has outstanding preferred stock. Plant Company owned none of the preferred stock prior to January 1, 20X5. Plant Company purchased 100% of the outstanding preferred stock on January 1, 20X5, at a price in excess of book value. The result of this transaction with regard to the consolidated statements is that

• A) there will be added goodwill.
• B) there will be a loss recorded in the year of the purchase.
• C) the preferred stock will not appear on the balance sheet and there will be a decrease in retained earnings as a result of the purchase.
• D) the investment in preferred stock will appear on the balance sheet.

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