Chapter 9, Problem 9.27P

To determine

Introduction:

Reciprocal ownership: A reciprocal relationship is when two companies hold stock in each other. It is rare in practice. The method of dealing with reciprocal relationships found mostly in the treasury stock method. Under the treasury stock method, purchases of a parent’s stock by the subsidiary are treated in the same way as if the parent had repurchased its own stock and was holding it in the treasury. The subsidiary will account for it as an investment in parent’s stock using the cost method as such investments usually are small and almost never has the ability to significantly influence parent.

Income assigned to the non-controlling interest in the subsidiary should be based on the subsidiary’s separate income excluding the dividend income from investment in the parent. The parent normally bases its equity-method share of the subsidiary’s excluding dividends from the parent.

The consolidated net income and the income assigned to the non-controlling shareholders of G and P for 20X7 using treasury stock method.