A new subsidiary is being formed.The parent company purchased 70% of the shares for $20 per share.The remaining shares were sold to a variety of outside interests for an average of $22 per share.The consolidated statements will show
A)a gain.
B)a loss.
C)only cash and related equity.
D)goodwill.

Question

A new subsidiary is being formed.The parent company purchased 70% of the shares for $20 per share.The remaining shares were sold to a variety of outside interests for an average of $22 per share.The consolidated statements will show
A)​a gain.
B)​a loss.
C)​only cash and related equity.
D)​goodwill.

Quizplus · Accepted Answer

Since the parent company purchased the majority of shares at a lower price than the average price the remaining shares were sold for, there will be a gain when these two amounts are consolidated. This gain will be recognized as an increase in equity on the consolidated statements.

A New Subsidiary Is Being Formed