On January 1, 2013, a subsidiary buys 8 percent of the outstanding voting stock

Question

On January 1, 2013, 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, 2013?

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.

A.

Included in current assets.

Explanation / Answer

C.

Consolidated stockholders' equity is reduced by $350,000

C.

Consolidated stockholders' equity is reduced by $350,000

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