On January 1, 2018, a Subsidiary Bought 10% of the Outstanding

question 2

Multiple Choice

On January 1, 2018, 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 $5.5 million, the consideration transferred for these shares was $590,000.During 2018, the parent reported separate net income of $714,000, before including investment income, while dividends declared were $196,000.How were these shares reported at December 31, 2018?

• A) The investment was recorded for $641,800 at the end of 2018 and then eliminated for consolidation purposes.
• B) Consolidated stockholders' equity was reduced by $641,800.
• C) The investment was recorded for $590,000 at the end of 2018 and then eliminated for consolidation purposes.
• D) Consolidated stockholders' equity was reduced by $639,800.
• E) Consolidated stockholders' equity was reduced by $590,000.

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Definitions:

Restricting Competition

Practices or agreements that limit free competition in the marketplace, often scrutinized under antitrust or competition laws.

Void

A term describing a contract or legal agreement that is null, having no legal force or effect, and therefore unenforceable.

Significant Sums

Large amounts of money that are considerable in quantity or effect.

Enforceable

Capable of being imposed or executed as per legal guidelines or by authority.