Comment on post as soon as possible thanks 1. I would recommend consolidation fo
ID: 2342985 • Letter: C
Question
Comment on post as soon as possible thanks
1. I would recommend consolidation for Subsidiary 1. International Inc. owns the majority stake in MEOil for the time being. Although this may change if the government does decide to nationalize MEOil.
2. I believe the cost method would be appropriate for Subsidiary 2. International Inc. may own the largest block of stock but it is still only a small 15% portion.
3. International Inc. should use the consolidation method for Subsidiary 3. Despite it being their first purchase of a non-manufacturing facility, they still now own 100% of Harmon National Bank stock.
4. I would use the equity method for Subsidiary 4. They may not have majority ownership of Campton Soups, but still a substantial 30% ownership.
Explanation / Answer
All the answers here provided are based on ASC 810- Consolidation:
1. If International Inc. owns majority stake (i.e., more than 50%) in MEOil then as per ASC 810, consolidation of subsidiary books should be in parents books using acquisition method, while elimination intercompany transactions and recognising non-controlling interests.In the event of losing control to the government, the codification guides for deconsolidation of accounts and recognizing the gain or loss in the event of such deconsolidation due to losing of control interest.
2.Yes, since the stake in Subsidiary 2 is less than 20%, therefore cost method of consolidation is applicable, in which investments are recorded at cost. Only dividends from the subsidiary are treated as income. For marketable securities, the investment account is adjusted to fair market value at the end of the year.
3. Yes. Since there is a 100% stake in National Bank, therefore acquistion method of consolidation method is suggested. The situation is similar to first part of Point 1.
4. Yes. If a company owns between 20 percent and 50 percent, it should use the equity method. The equity method records the investment at cost. The subsidiary’s earnings increase the investment in the company and dividends decrease the investment in the company. The subsidiary’s earnings are not treated as income; its dividends have no income effect.