Question
On January 1, 2013, a subsidiary buys 12 percent of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value
On January 1, 2013, a subsidiary buys 12 percent of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value of the acquired shares by $80,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported operating income of $1,000,000 (excluding investment income from the subsidiary), and paid $120,000 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, 2013?
A. | Consolidated stockholders' equity is reduced by $400,000. |
B. | Consolidated stockholders' equity is reduced by $320,000. |
C. | Included in current assets. |
D. | Included in noncurrent assets. |
E. | There is no effect on the consolidated balance sheet, because the effects have been eliminated. |
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