On January 1, 2011, a Subsidiary Buys 8 Percent of the Outstanding

question 8

Multiple Choice

On January 1, 2011, a subsidiary buys 8 percent 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, 2011?

• 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:

Spotlight Effect

The belief that others pay more attention to our appearance and behavior than they actually do.

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An individual’s belief in their capacity to execute behaviors necessary to produce specific performance attainments.

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Narcissism

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