Assume that a subsidiary has 10,000 shares of stock outstanding, of which 8,000 shares are owned by the parent. If the parent purchases an additional 2,000 shares of stock directly from the subsidiary at book value, how should the parent record its additional investment? Would your answer have been different if the purchase of the 2,000 shares had been made above book value? Explain.
Answer to relevant QuestionsHow do the treasury stock transactions of a subsidiary affect the parent’s accounting for its investment under the equity method?Pet Corporation owns 100 percent (300,000 shares) of the outstanding shares of Sap Corporation’s common stock on January 1, 2011. Its Investment in Sap account on this date is $4,400,000, equal to Sap’s $4,000,000 ...Pit Corporation acquired a 90 percent interest in Sad on July 1, 2012, for $675,000. The stockholders’ equity of Sad at December 31, 2011, was as follows (in thousands):Capital stock $500Retained earnings ...Pal Company purchased 9,000 shares of Sal Corporation’s $50 par common stock at $90 per share on January 1, 2011, when Sal had capital stock of $500,000 and retained earnings of $300,000. During 2011, Sal Corporation had ...Poe Corporation purchased a 90 percent interest in San Corporation on December 31, 2011, for $2,700,000 cash, when San had capital stock of $2,000,000 and retained earnings of $500,000. All San’s assets and liabilities ...
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