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

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.