On January 1, 2021, a Subsidiary Buys 12% of the Outstanding

question 19

Multiple Choice

On January 1, 2021, a subsidiary buys 12% of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value of the acquired shares by $80,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported separate company income of $1,000,000 (excluding investment income from the subsidiary) , and paid $120,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2021?

• A) Consolidated stockholders' equity is reduced by $400,000.
• B) Consolidated stockholders' equity is reduced by $320,000.
• C) Included in current assets.
• D) Included in noncurrent assets.
• E) There is no effect on the consolidated balance sheet, because the effects have been eliminated.

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