On January 1, 2021, a Subsidiary Buys 8% of the Outstanding

question 63

Multiple Choice

On January 1, 2021, a subsidiary buys 8% of the outstanding voting stock of its parent corporation. The payment of $350,000 exceeded book value of the acquired shares by $50,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported operating income of $675,000 (excluding investment income from the subsidiary) , and paid $100,000 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) Included in current assets.
• B) Included in noncurrent assets.
• C) Consolidated stockholders' equity is reduced by $350,000.
• D) Consolidated stockholders' equity is reduced by $300,000.
• E) There is no effect on the consolidated balance sheet, because the effects have been eliminated.

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Definitions:

Three Shares Of Stock

Small equity portions representing part ownership in a company, specifically quantified as three units of stock.

Motorcycle

A two-wheeled motor vehicle with a seat for the rider, known for its maneuverability and speed.

Pool Table

A bounded table designed for the game of pool, characterized by a flat surface covered with cloth and equipped with pockets and cushions.

Irrevocable

Unable to be changed, reversed, or recovered; a decision or action that is final and binding.