How does the sale of the subsidiary's own common stock effect the parent's investment in the...

How does the sale of the subsidiary's own common stock effect the parent's investment in the subsidiary?

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Expert Solution

ANSWER :- The sale of the subsidiary's own common stock effect the parent's investment in the subsidiary as follows:-

1) The subsidiary issues additional shares of stock, the transaction impacts the parent's investment in the subsidiary account.

2) When the parent purchases some of the newly issued shares than the adjustment depends uopn the ownership interest,after the purchase is less than ,equal to, or greater than the ownership interest prior to the purchase.

3) The comparision is made of the parent's position before or after the subsidiary transaction occurs.

4) A parent can allow the subsidiary to sell the additional shares of stock in order to get additional equity.

5) A sale of stock by the subsidiary to the new non-controlling shareholders or the existing non-controlling results in an increase in the total subsidiary stockholders equity.

6) The parent can adjust its investment in subsidiary account to record the effect on controlling interest.

7) A parent using the cash method records on dividend received from the subsidiary.

8) The subsidiary may use its resources to purchase shares of the parent,when this occurs,the subsidiary is viewed as the parent's agent purchasing treasury shares for the parent.

ekkarill92 answered 2 years ago

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