It Is Common for a Parent Firm to Record Its

question 13

Essay

It is common for a parent firm to record its investment in a subsidiary under either the cost or simple equity method to expedite the elimination process. This does create some complications, however, when all or a portion of the investment is sold. Assume that in each of the following cases, the parent sells its investment midway through its fiscal year.
(1)The parent owned an 80% interest and sold all of its holdings.
(2)The parent owned an 80% interest and sold a 20% interest to reduce its ownership percentage to 60%.
(3)The parent owned an 80% interest and sold a 60% interest to reduce its ownership percentage to 20%.
Required:
a.For each of the above cases, comment on the procedures necessary to record the sale, where the investment is carried under simple equity, and the impact on consolidated income of the sale.
b.For each of the above cases, state the added procedures that would be necessary if the investment was recorded under the cost method.

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Definitions:

Light

Electromagnetic radiation that can be perceived by the human eye, playing a critical role in vision and influencing various biological processes.

Conception

The process of fertilization where a sperm cell combines with an egg cell to form a zygote, marking the beginning of pregnancy.

Age of Viability

The stage of fetal development at which the fetus is considered capable of surviving outside the womb, typically around the 24th week of gestation.

Fetus's Lungs

The developing respiratory organs in a fetus, which undergo significant growth and maturation during pregnancy to prepare for air breathing after birth.