On January 1, 2011, a Subsidiary Bought 10% of the Outstanding

question 73

Multiple Choice

On January 1, 2011, 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 2011, the parent reported operating income (no investment income was included) of $714,000 while paying dividends of $196,000. How were these shares reported at December 31, 2011?

• A) The investment was recorded for $641,800 at the end of 2011 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 2011 and then eliminated for consolidation purposes.
• D) Consolidated stockholders' equity was reduced by $639,800.
• E) Consolidated stockholders' equity was reduced by $590,000.

Differentiate between total and per-unit cost behaviors for variable and fixed costs.

Grasp the significance of the relevant range in cost analysis.

Identify examples of variable, fixed, and mixed costs in production.

Recognize the importance of selecting the proper activity base for costing purposes.