Your friend is a non-controlling interest shareholder in a large company. He knows that the subsidiary company leases most of its assets from the parent company under operating leases. He further believes that the lease rates are in excess of market rates. He made his concern known to the parent company management. Their response was: ‘‘don’t worry about it; it washes out in the consolidation process and ends up having no effect on income.’’ Your friend wants to know if this is true and if he was wrong to be concerned.
Answer to relevant QuestionsA parent company may want to shift profits to the controlling interest and may use intercompany capital leases to accomplish that end. Is there an opportunity to do that with both direct financing and sales-type leases? What ...On January 1, 2014, Dunbar Corporation, an 85%-owned subsidiary of Garfield Industries, received $48,055 for $50,000 of 8%, 5-year bonds it issued when the market rate was 9%. When Garfield Industries purchased these bonds ...Sym Corporation, a wholly owned subsidiary of Paratec Corporation, leased equipment from its parent company on August 1, 2016. The terms of the agreement clearly do not require the lease to be accounted for as a capital ...Penn Company leased a production machine to its 80%-owned subsidiary, Smith Company. The lease agreement, dated January 1, 2011, requires Smith to pay $18,000 each January 1 for three years. There is an unguaranteed residual ...Power Pro, Inc., is a large manufacturer of marine engines. In recent years, Power Pro, like other engine manufacturers, has purchased a controlling interest in independent boat builders. The intent of the acquisitions is to ...
Post your question