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On January 1, 20x1, Pretty Corporation acquired a controlling interest in the voting common stock of...

On January 1, 20x1, Pretty Corporation acquired a controlling interest in the voting common stock of Friendly Co. At the same time, Pretty Co. purchased 60% of Friendly's outstanding preferred stock. In preparing consolidated financial statements, how should the acquisition of the preferred stock be accounted for?

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Answer #1

1.While preparing consolidated financial statements, we will calculate how much goodwill/capital reserve to be accounted for :-

Cost of 60 % investment -   

less :- Net assets -

Goodwill/Capital reserve

2. We will also calculate how much non controlling interest acquired by Pretty corporation i.e minority interest would be 40% .

3. In last we eliminate the entries in consolidated profit/loss account for arriving at consolidated profit/loss amount.

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