On January 1, 2021, a Subsidiary Bought 10% of the Outstanding

question 87

Multiple Choice

On January 1, 2021, a subsidiary bought 10% of the outstanding shares of its parent company. Although the total book value and fair value of the parent's net assets were $6.2 million, the consideration transferred for these shares was $700,000. During 2021, the parent reported separate net income of $816,000, before including investment income, while dividends declared were $207,000. How were these shares reported at December 31, 2021?

• A) The investment was recorded for $760,900 at the end of 2021 and then eliminated for consolidation purposes.
• B) Consolidated stockholders' equity was reduced by $760,900.
• C) The investment was recorded for $700,000 at the end of 2021 and then eliminated for consolidation purposes.
• D) Consolidated stockholders' equity was reduced by $802,300.
• E) Consolidated stockholders' equity was reduced by $700,000.

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