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:

Average Month

A concept used to calculate the average results or performance over several months, smoothing out fluctuations.

Return on Investment

A financial metric measuring the profitability of an investment, calculated as net profit divided by the cost of the investment.

Responsibility Centers

Responsibility centers are parts of an organization treated as separate units for the purpose of assigning and evaluating financial performance.

Evaluating Performance

The process of assessing the effectiveness and efficiency of operations, employees, or processes.