Change in parent’s ownership: the parent company can change ownership ratio by purchasing or selling shares of the subsidiary in transaction with unaffiliated companies. a subsidiary can change the parent’s ownership percentage by selling additional shares to or repurchase shares from unaffiliated parties. When parent sells a subsidiary share to non-affiliate a gain or loss normally occurs and is recorded on the seller’s books when a company disposes of all or part of an investment. ASC 323 deals explicitly with sales of stock of investee, requiring recognition of a gain or loss on the difference between the selling price and the carrying amount of the stock.
To explain : how parent purchase of additional common shares of its subsidiary above the book value reflects in consolidated financial statements.
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Advanced Financial Accounting
- Effects on consolidated financial statements of acquisition of affiliate's debt from non-affiliate On January 1, 2022, a Parent company has a debt outstanding that was originally issued at a discount and was purchased, on issuance, by an unaffiliated party. On January 1, 2022, a Subsidiary of the Parent purchased the debt from the unaffiliated party. The debt was purchased by the Subsidiary at a slight premium. The Parent is a calendar year company. Which one of the following statements is true? The consolidated balance sheet at December 31, 2022 will report none of the debt, and the consolidated income statement for the year ended December 31, 2022 will report a gain or loss from constructive retirement of the debt and will not report any interest expense from the debt. The consolidated balance sheet at December 31, 2022 will report the debt, and the consolidated income statement for the year ended December 31, 2022 will not report any interest expense from the debt. The consolidated…arrow_forwardDuring a fiscal year, the balance of a parent company's Investment in Subsidiary ledger account for a wholly owned subsidiary, for which the parent company uses the equity method of accounting, increases the amount of the sibsidiary's A. Adjusted net income. B. Dividends. C. Adjusted net income plus dividends. D. Undistributed earnings.arrow_forwardWhen the acquisition of a subsidiary occurs during a reporting period, the computation of both BEPS and DEPS includes subsidiary income O and subsidiary securities for the entire period. O for the entire period and the number of subsidiary shares weighted for the partial period. O for the partial period and the number of subsidiary shares weighted for the partial period O for the partial period and the number of subsidiary shares entire periodarrow_forward
- Parent Co. acquired 90% of the common stock of Subsidiary Co. in a cash-only transaction. In the first consolidated balance sheet issued after this business combination, the noncontrolling interest must be reported as O A. Current assets. O B. Noncurrent assets. O C. Equity. O D. Noncurrent liabilities.arrow_forwardOn January 2, Year 4, Brady Ltd., a private company, purchased 80% of the outstanding shares of Partridge Ltd. for $6,020,000. Partridge's statement of financial position and the fair values of its identifiable assets and liabilities for that date were as follows: Plant and equipment (net) Patents (net) Inventory Accounts receivable Cash Ordinary shares Retained earnings 10% bonds payable Accounts payable • Year 4: $82,000 Year 6: $64,750 The patents had a remaining useful life of ten years on the acquisition date. The bonds were issued on January 1. Year 2, and mature on December 31, Year 13. Goodwill impairment losses were as follows: Plant and equipment (net) Patents (net) Partridge declared and paid dividends of $140,000 in Year 6. Brady uses ASPE for reporting purposes. It elected to use the straight-line method to amortize any premium or discount on bonds payable. Investment in Partridge Ltd. (equity method) Inventory Accounts receivable Cash On December 31, Year 6, the financial…arrow_forwardCompany Y purchases a controlling interest in Company Z on January 1, 2019. Which of thefollowing would appear as the Shareholders' Equity amount on Company Y's ConsolidatedBalance Sheet on the date of acquisition?A. Company Y's Shareholders' Equity.B. The sum of the Shareholders' Equity of both companies.C. Company Y's Shareholders' Equity as well as Company Y's proportional share ofCompany Z's net assets at book value.D. Company Y's Shareholders' Equity as well as Company Y's proportional share ofCompany Z's net assets at fair market value.arrow_forward
- On January 1, 2022, a Parent company has a debt outstanding that was originally issued at a discount and was purchased, on issuance, by an unaffiliated party. On January 1, 2022, a Subsidiary of the Parent purchased the debt from the unaffiliated party. The debt was purchased by the Subsidiary at a slight premium. The Parent is a calendar year company. Which one of the following statements is true? The consolidated balance sheet at December 31, 2022 will report none of the debt, and the consolidated income statement for the year ended December 31, 2022 will report a gain or loss from constructive retirement of the debt and will not report any interest expense from the debt. The consolidated balance sheet at December 31, 2022 will report none of the debt, and the consolidated income statement for the year ended December 31, 2022 will report a gain or loss from constructive retirement of the debt and will report interest expense from the debt. The consolidated balance sheet at December…arrow_forwardTrue or false: When the parent acquired 100 percent of the subsidiary’s stock for book value during the current period, consolidated net income is always the sum of the parent’s net income and the subsidiary’s net income for the entire reporting period.arrow_forwardDetermine the amounts that would appear in the consolidated financial statements of Pub Corporation and Sub for each of the following: 1. Goodwill at December 31, 2019 2. Non-controlling interest share for 2019 3. Consolidated retained earnings at December 31, 2018 4. Consolidated retained earnings at December 31, 2019 5. Consolidated net income for 2019 6. Non-controlling interest at December 31, 2018 7. Non-controlling interest at December 31, 2019arrow_forward
- One company purchases the outstanding debt instruments of an affiliated company on the open market. This transaction creates a gain that is appropriately recognized in the consolidated financial statements of that year. Thereafter, a worksheet adjustment is required to correct the beginning balance of consolidated Retained Earnings (or the parent’s Investment in Subsidiary account when the equity method is employed). Why is the amount of this adjustment reduced from year to year?arrow_forwardbased on the information in the picture, In the consolidated statement of comprehensive income for the year ended December 31, 2021, how much is the consolidated net income attributable to the controlling interest? a. 1,980,000 b. 1,860,000 c. 1,830,000 d. 1,760,000arrow_forwardParent Company acquired 80% of the ordinary shares of Subsidiary Company at a time when Subsidiary’s book values and fair values were equal. Selected financial data are available for 2022 (see image below).Intercompany sales are as follows (see image below).How much is the Consolidated Net Income? please explain.arrow_forward