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Subsidiary’s shares transactions:Sometimes subsidiary purchases treasury shares from non-controlling shareholders. The parent company may prefer not to be concerned with outside shareholders and may direct the subsidiary to reacquire any non-controlling shares that become available.
Although the parent may not participate directly when subsidiary purchases
Reciprocal ownership: A reciprocal relationship is when two companies hold stock in each other. It is a rare practice. The method of dealing with reciprocal relationships is found mostly in the treasury stock method. Under treasury stock method, purchases of a parent’s stock by subsidiary are treated in the same way as if parent had repurchased its own stock and was holding it in the treasury. The subsidiary will account it as investment in parent’s stock using the cost method, as such investments usually are small and almost never have the ability to significantly influence parent.
Computation of book value of shares held by P and record the entry in P’s books to record the change in book value of its investment in S’s shares.
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Subsidiary’s shares transactions: Sometimes subsidiary purchases treasury shares from non-controlling shareholders. The parent company may prefer not to be concerned with outside shareholders and may direct the subsidiary to reacquire any non-controlling shares that become available.
Although the parent may not participate directly when subsidiary purchases treasury stock, the parent’s equity in the net assets of the subsidiary may change as a result of the transaction. The change must be recognized in preparing the consolidated statements.
Reciprocal ownership: A reciprocal relationship is when two companies hold stock in each other. It is a rare practice. The method of dealing with reciprocal relationships is found mostly in the treasury stock method. Under treasury stock method, purchases of a parent’s stock by subsidiary are treated in the same way as if parent had repurchased its own stock and was holding it in the treasury. The subsidiary will account it as investment in parent’s stock using the cost method, as such investments usually are small and almost never have the ability to significantly influence parent.
The Computation of book value, entries in books of S and consolidation entries in case of direct purchase from P on January 1. 20X7.
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Chapter 9 Solutions
ADVANCED FINANCIAL ACCOUNTING-ACCESS
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