A Parent Company's Equity Interest in a Subsidiary May Change

question 5

Essay

A parent company's equity interest in a subsidiary may change as the result of the issuance of additional shares of stock by the subsidiary. Describe the effect on the parent's investment account when the new shares are (a) purchased ratably by the parent and noncontrolling shareholders or (b) entirely by the noncontrolling shareholders.

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Definitions:

Compound Interest

Accumulated interest calculation that includes both the principal amount and the interest that has been gained on it from previous periods for loans or deposits.

Cash Inflow

Represents money or cash equivalents being transferred into a company, coming from various sources like sales, investments, or financing activities.

Present Value

A calculation that determines the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Compound Interest

This refers to the method of calculating interest where it is applied not only to the original sum but also to the interest that has been accrued over earlier periods for a given deposit or loan.