Question

A Parent company owns a 70 percent controlling interest in the voting common stock of its Subsidiary. The subsidiary also has outstanding 10,000 shares of 3% cumulative preferred stock outstanding with par value equal to $5,000,000. If the parent company owns none of the preferred stock, how should the preferred stock be accounted for in the consolidation financial statement?

How would your answer change if the parent company owned 100 percent of the preferred stock?

Answer 1

Answer and Explanation:

a. In the case when the subsidiary company owns none of the preferred stock so the income of the subsidiary and the net assets allocated to the preferred stocks that not owned by the parent would be involved in the non-controlling interest

b. Now if the parent company owned 100% of the preferred stock so the share of the income of the subsidiary and the net asset allocated to the preferred shares would be removed against the balance left in the investment account of the parent