On January 1, a subsidiary buys 10 percent of the outstanding shares of its parent company. Although the total book value and fair value of the parent’s net assets were $4 million, the price paid for these shares was $420,000. An intangible asset is amortized in this business combination over a 40 year period. During the year, the parent reported $510,000 of operational income (no investment income was included) and paid dividends of $140,000. How are these shares reported at December 31?
a. The investment is recorded as $457,000 and then eliminated for consolidation purposes.
b. Consolidated stockholders’ equity is reduced by $457,000.
c. The investment is recorded as $456,500 and then eliminated for consolidation purposes.
d. Consolidated stockholders’ equity is reduced by $420,000.