Question

Company A buys 60% of the outstanding common voting stock of Company B. A)What method of...

Company A buys 60% of the outstanding common voting stock of Company B.

A)What method of accounting should Company A utilize after the purchase of Company B is completed, and why? How is the impact of your decision disclosed on the financial statements?

B)How does your answer change if Company A purchased 35% of the outstanding common stock of Company B, and why? How is the impact of your decision disclosed on the financial statements?

C)How does your answer change if Company A purchased 5% of the outstanding common stock of Company B, and why? How is the impact of your decision disclosed on the financial statements?

D)How would your answer to question 4 (a) change if the stock purchased was non-voting preferred stock, and why? How is the impact of your decision disclosed on the financial statements?

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Answer #1

A) if the company puchased the 60% of the outstanding common votig of compan B then there will be holding and subsidiary relation between company so company shall required to prepare the consolidated financial statement

B) if the company purchased the 35 % then it establised the relation of associates and company shall required to shown the investment at the market value for true and fair view of financila statement

C) if company purchase the 5 % only it shall be considered as investment and shown at cost only in financial statement

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