On January 1, Balanger Company buys 10 percent of the outstanding shares of its parent, Altgeld, Inc. Although the total book and fair values of Altgeld's net assets equaled $3.2 million, the price paid for these shares was $340,000. During the year, Altgeld reported $415,000 of separate operating income (no subsidiary income was included) and declared dividends of $35,000. How are the shares of the parent owned by the subsidiary reported at December 31

a. Consolidated stockholders’ equity is reduced by $340,000.

Explanation:

Consolidated stockholders' equity is the equity owned by stockholders in the entire parent company of Altgeld and its subsidiaries. Balanger as a company, then buys some of its parent's stock for $340,000.

The effect this will have is to reduce the stock available to stockholders in the parent and the subsidiaries almost like buying treasury shares. Consolidated stockholders' equity will therefore reduce by the amount paid for the shares of $340,000.