A Parent Company Owns a 90% Interest in a Subsidiary

question 25

Multiple Choice

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.

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Definitions:

Product Placement

The practice of strategically placing products within various forms of media to increase visibility and promote sales.

Traditional Advertising

Advertising methods such as print, broadcast, direct mail, and outdoor that have been used before the rise of digital platforms.

Licence to Sell

A legal authorization or permit granted to an individual or business entity to engage in the commercial sale of goods or services.

Customers

Individuals or entities that purchase goods or services from a business.