Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 9.7Q
To determine
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.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
True 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.
Parent Corporation acquired 80% of the outstanding shares of Subsidiary Company on June 1, 2021 for P3,517,500. Subsidiary Company’s stockholder’s equity components at the end of this year are as follows: Ordinary shares, P100 par, P1,500,000, Share premium P675,000 and Retained Earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of Subsidiary Company were fairly valued, except for inventories, which are overstated by P66,000, and equipment, which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of Parent Corporation on January 1, 2021 is composed of Ordinary shares P4,500,000, Share premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year end. Net Income for the first year of parent is P450,000 and the net income of Subsidiary Company from the date of acquisition is P255,000. Dividends declared at the end of the year…
P Inc. owns S Corp. For the current year, P reports net income (without consideration of its investment in S) of $185,000, and the subsidiary reports $105,000. The parent had a bond payable outstanding on January 1 with a carrying amount of $209,000. The subsidiary acquired the bond on that date for $196,000. During the current year, P reported interest expense of $18,000 while S reported interest income of $19,000 both related to the intra-entity bond payable. What is consolidated net income?
Chapter 9 Solutions
Advanced Financial Accounting
Ch. 9 - Prob. 9.1QCh. 9 - Prob. 9.2QCh. 9 - Prob. 9.3QCh. 9 - Prob. 9.4QCh. 9 - Prob. 9.5QCh. 9 - Prob. 9.6QCh. 9 - Prob. 9.7QCh. 9 - Prob. 9.8QCh. 9 - Prob. 9.9QCh. 9 - Prob. 9.10Q
Ch. 9 - Prob. 9.11QCh. 9 - Prob. 9.12QCh. 9 - Prob. 9.13QCh. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Prob. 9.16QCh. 9 - Prob. 9.1CCh. 9 - Prob. 9.2CCh. 9 - Prob. 9.3CCh. 9 - Prob. 9.4CCh. 9 - Prob. 9.5CCh. 9 - Prob. 9.1.1ECh. 9 - Prob. 9.1.2ECh. 9 - Prob. 9.1.3ECh. 9 - Prob. 9.1.4ECh. 9 - Prob. 9.2.1ECh. 9 - Prob. 9.2.2ECh. 9 - Prob. 9.2.3ECh. 9 - Prob. 9.2.4ECh. 9 - Prob. 9.2.5ECh. 9 - Prob. 9.3ECh. 9 - Prob. 9.4ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Subsidiary Stock Dividend Stake Company reported...Ch. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17.1PCh. 9 - Prob. 9.17.2PCh. 9 - Prob. 9.17.3PCh. 9 - Prob. 9.17.4PCh. 9 - Prob. 9.17.5PCh. 9 - Prob. 9.18PCh. 9 - Prob. 9.19PCh. 9 - Prob. 9.20PCh. 9 - Prob. 9.21PCh. 9 - Prob. 9.22PCh. 9 - Prob. 9.23PCh. 9 - Prob. 9.24PCh. 9 - Prob. 9.25PCh. 9 - Prob. 9.26PCh. 9 - Prob. 9.27P
Knowledge Booster
Similar questions
- Parent 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_forwardPARENT Corporation acquired 80% of the outstanding shares of SUBSIDIARY Company on June 1, 2022 for P3,517,500. SUBSIDIARY Company’s stockholder’s equity components at the end of this year are as follows; Ordinary shares, P100 par, P1,500,000. Share premium P675,000 and Retained Earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of SUBSIDIARY were fairly valued, except for inventories, which are overstated by P66,000 and equipment, which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of PARENT on January 1, 2022 is composed of Ordinary shares P4,500,000, Share premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year-end. Net Income for the first year of parent is P450,000 and the net income of subsidiary from the date of acquisition is P255,000. Dividends declared at the end of the year amounted to P120,000 and P90,000 for…arrow_forwardAssuming Arden Company acquired 80% of the outstanding shares of Wonder Company for P820,000 and non-controlling interest is measured at the proportionate share of Wonder Company’s identifiable net assets, how much is the consolidated stockholder’s equity on the date of acquisition?arrow_forward
- DDD Company issued its ordinary shares for the net assets of EEE Company in a business combination treated as acquisition. DDD’s ordinary share issued was worth P1,000,000. At the date of combination, DDD’s net assets had a book value of P1,200,000 and a fair value of P1,600,000. EEE’s net assets had a book value of P650,000 and a fair value of P800,000. Immediately following the combination, the net assets of the combined company should have been reported at what amount?arrow_forwardParent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per share for all of the subsidiary's common stock. The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment undervalued by $225,000. In addition, there were two unrecorded assets: a trademark valued at $175,000 and a customer list valued by the subsidiary at $60,000. The balance sheets of the parent and subsidiary immediately after the acquisition are presented below: Parent Subsidiary Cash $740,000 $420,000 Accounts Receivable 900,000 625,000 Inventory 440,000 750,000 Equity Investment 2,500,000 Property, plant and equipment (net) 3,190,000 1,205,000 $7,770,000 $3,000,000 Accounts payable $125,000 $145,000 Salaries payable 60,000 35,400 Long-Term Notes Payable 700,000 850,000 Common Stock 200,000 150,000 Additional paid-in capital 5,000,000…arrow_forwardA Parent Company owns 100 percent of its Subsidiary. During 2021, the Parent company reports net income (by itself, without any investment income from its Subsidiary) of $1,840,000 and the subsidiary reports net income of $736,000. The parent had a bond payable outstanding on December 31, 2021, with a carrying value equal to $1,545,600. The Subsidiary acquired the bond on December 31, 2021, for $1,453,600. During 2021, the Parent reported interest expense (related to the bond) of $128,800 while the Subsidiary reported no interest income (related to the bond). What is consolidated net income for the year ended December 31, 2021? b. $2,668,000 d. $2,796,800arrow_forward
- Following are separate income statements for Austin, Inc., and its 80 percent–owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole. Additional Information • Annual excess fair over book value amortization of $25,000 resulted from the acquisition. • The parent applies the equity method to this investment. • Austin has 50,000 shares of common stock and 10,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $40,000, and each share can be exchanged for two shares of common stock. • Rio Grande has 30,000 shares of common stock outstanding. The company also has 5,000 stock warrants outstanding. For $10, each warrant can be converted into a share of Rio Grande’s common stock. Austin holds half of these warrants. The price of Rio Grande’s common stock was $20 per share throughout the year. • Rio Grande also has convertible bonds, none of which Austin owned. During the current…arrow_forwardOn June 30, 20X1, Naeder Corporation purchased for cash at $10 per share all 100,000 shares of the outstanding common stock of the Tedd Company. The total fair value of all identifiable net assets of Tedd was $1,400,000. The only noncurrent asset is property with a fair value of $350,000. The consolidated balance sheet of Naeder and its wholly owned subsidiary on June 30, 20X1, should report a. a retained earnings balance that is inclusive of a gain of $400,000. b. goodwill of $400,000. c. a retained earnings balance that is inclusive of a gain of $350,000. d. a gain of $400,000arrow_forwardHouse Plc owns 80% of the issued share capital of Window Plc and 25% of the issued share capital of Door Plc. The revenues for the year are as follows:House Plc GH¢1,500,000Window Plc GH¢1,000,000Door Plc GH¢160,000What amount for revenue should appear in the consolidated statement of profit or loss for the year?arrow_forward
- Company P owns 90% of Company S’s shares. Assume Company S then purchases 2% of Company P’s outstanding shares of common stock. When consolidating, what happens to the 2% holding in the consolidated financial statements?arrow_forwardPretzel Corporation acquired 100 percent of Stick Company’s outstanding shares on January 1, 20X7. Balance sheet data for the two companies immediately after the purchase follow: As indicated in the parent company balance sheet, Pretzel purchased $59,000 of Stick’s bonds from the subsidiary at par value immediately after it acquired the stock. An analysis of intercompany receivables and payables also indicates that the subsidiary owes the parent $8,000. On the date of combination, the book values and fair values of Stick’s assets and liabilities were the same. Record the basic consolidation entryarrow_forwardPotter Corporation and its subsidiary reported consolidated net income of $164,300 for 20X2. Potter owns 75 percent of the common shares of its subsidiary, acquired at book value. Noncontrolling interest was assigned income of $7,750 in the consolidated income statement for 20X2. Required: Determine the amount of separate operating income reported by Potter for 20X2.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
