A parent company owns a 90% interest in a subsidiary at the start of the year and during the year sells a 10% interest to reduce its ownership percentage to 80%.The most popular view of the transaction under current consolidations theory is that
A)it is a sale of an investment at a gain or a loss.
B)it is likened to a treasury stock transaction that may not result in a gain or a loss.
C)it is a transaction between the controlling and non-controlling ownership interests and has no effect on consolidated income.The transaction would impact only paid-in capital.
D)the increase or decrease in equity as a result of the sale is an adjustment to donated capital.

Question

A parent company owns a 90% interest in a subsidiary at the start of the year and during the year sells a 10% interest to reduce its ownership percentage to 80%.The most popular view of the transaction under current consolidations theory is that
A)​it is a sale of an investment at a gain or a loss.
B)​it is likened to a treasury stock transaction that may not result in a gain or a loss.
C)​it is a transaction between the controlling and non-controlling ownership interests and has no effect on consolidated income.The transaction would impact only paid-in capital.
D)​the increase or decrease in equity as a result of the sale is an adjustment to donated capital.

Quizplus · Accepted Answer

The transaction is between the controlling and non-controlling ownership interests and has no effect on consolidated income. The sale does not result in a gain or a loss, and it only impacts paid-in capital. This view is in line with the current consolidations theory.

A Parent Company Owns a 90% Interest in a Subsidiary