The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary. It received $1,200,000 for the shares.

At the time of the sale of the shares, the parent was holding the investment in subsidiary at what amount, in its own books?
A) $450,000.
B) $700,000.
C) $950,000.
D) $1,450,000.
E) Cannot be determined from the information given.

Question

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary. It received $1,200,000 for the shares.

At the time of the sale of the shares, the parent was holding the investment in subsidiary at what amount, in its own books?
A) $450,000. 
B) $700,000. 
C) $950,000. 
D) $1,450,000. 
E) Cannot be determined from the information given.

Quizplus · Accepted Answer

The parent received $1,200,000 for the shares, which is not equal to the carrying value of the investment of $950,000 (as seen in the consolidation adjusting entries). This means that the investment had to be recorded at a value higher than $1,200,000 in the parent's books. The only option that fits this criteria is B, $700,000, as it still allows for a gain of $500,000 (the difference between the sale price and the carrying value in the consolidation adjusting entries).

The Following Consolidation Adjusting Journal Entries Appeared at the End