Indirect and Mutual Holdings
The parent's direct and indirect ownership of Subsidiary B is 49 percent (70% x 70%).
However, consolidation of Subsidiary B is still appropriate because 70 percent of B's stock is held
within the affiliation structure and only 30 percent is held by the minority stockholders of B.
Combined separate earnings of Pat, Sam, and Stan ($100,000
+ $80,000 + $50,000)
Minority interest expense computed as follows:
Direct minority interest in Stan's income ($50,000 x 30%)
Indirect minority interest in Stan's income ($50,000
x 70% x 20%)
Direct minority interest in Sam's income ($80,000 x 20%)
Pat's net income and consolidated net income
Allocate Stan's income to Sam
($50,000 x 70%)
Allocate Sam's income to Pat
($115,000 x 80%)
Consolidated net income
Minority interest expense
When the schedule approach for allocating income is used, investment income from the lowest
subsidiary must be added to the separate income of the next subsidiary to determine that
subsidiary's net income before it can be allocated to the next subsidiary, and so on.