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.

---

Definitions:

Storage Difficulty

Challenges associated with keeping goods, materials, or data preserved and accessible over time.

Biomass

Organic material derived from plants and animals, used as a renewable energy source when converted into fuel or power.

Developing Countries

Nations with lower living standards, underdeveloped industrial bases, and low Human Development Index (HDI) relative to other countries, often focusing on agriculture and facing challenges in health, education, and infrastructure.

Energy Source

The origin from which energy can be generated, ranging from fossil fuels and nuclear power to renewable sources like solar and wind.