Prescott Corp. owned 90% of Bell Inc., while Bell owned 10% of the outstanding common shares of Prescott. No goodwill or other allocations were recognized in connection with either of these acquisitions. Prescott reported net income of $266,000 for 2018 whereas Bell recognized $98,000 during the same period. No investment income was included within either of these income totals.How would the 10% investment in Prescott owned by Bell be presented in the consolidated balance sheet?

Question

A. The 10% investment would be eliminated and no amount would be shown in the consolidated balance sheet.
B. The 10% investment would be eliminated and the same dollar amount would appear as treasury stock in the consolidated balance sheet.
C. Prescott would treat the shares owned by Bell as if they had been repurchased on the open market, and a treasury stock account would be set up on Prescott's books recording the shares at their market value on the date of combination.
D. The 10% investment would be reclassified in Bell's balance sheet as Treasury Stock before the consolidation process begins.
E. The 10% investment would be included as part of Additional Paid-In Capital because it is less than 20% and therefore indicates no significant influence is present.

Answer 1

Answer: B