Discussion One - whether or not the sale results in the...

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When a parent company that records its investment using the cost method during a fiscal year sells a portion of its investment, explain the correct accounting for any difference between selling price and recorded value. In the past, under US GAAP, the treatment of the sale of a portion of the parent’s stock in the subsidiary was exactly the same regardless of whether or not the transaction resulted in a loss of control in the subsidiary. However, that is not the case under current US GAAP. Under current GAAP, the treatment of the sale of a portion of a parent’s stock in a subsidiary depends on
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Unformatted text preview: whether or not the sale results in the parent losing control of the subsidiary. If a small enough amount of stock is sold so the parent can maintain effective control of the subsidiary then an adjustment is made to additional contributed capital of the controlling interest, but no gain or loss is recognized on the Income Statement. If, however, the sale results in a loss of control of the subsidiary, the entire interest is adjusted to fair value, and a gain or loss is recorded in income on all stock owned prior to the sale....
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