For financial reporting purposes, the parent firm should account for the spin-off of a subsidiary's stock to its shareholders at book value with no gain or loss recognized, other than any reduction in value due to impairment.

Question

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The spin-off of a subsidiary's stock to shareholders is accounted for at book value with no gain or loss recognized for financial reporting purposes. However, any reduction in the value of the spin-off due to impairment should be recognized as a loss.

For Financial Reporting Purposes, the Parent Firm Should Account for the Spin-Off