Pail,Inc.holds 100 percent of the common stock of Shovel Company,an investment acquired for $680,000.Immediately following the combination,Pail's net assets have a book value of $1,150,000 and a fair value of $1,390,000.The book value and the fair value of Shovel's net assets on the date of combination are $400,000 and $550,000,respectively.Immediately following the combination,a consolidated balance sheet is prepared.
-Based on the information given above,at what amount will Pail's investment in Shovel stock be reported in the consolidated balance sheet?
A)$0
B)$400,000
C)$440,000
D)$480,000

Question

Quizplus · Accepted Answer

In a consolidated balance sheet, investments in subsidiaries are eliminated and replaced by the assets and liabilities of the subsidiary. Since Pail holds 100 percent of Shovel, the investment in Shovel stock is eliminated, resulting in a reporting amount of $0.

Pail,IncHolds 100 Percent of the Common Stock of Shovel Company,an