Question

QUESTION 16

1. Huge bought 90% of the shares of Sub at $8 per share, several years ago. This year, it sells 10% of Sub’s stock for $9 per share. Huge still has control. Which of the following statements is correct, under GAAP, for the consolidated statements?

   	a.	Huge will report a gain, in net income, of $1 per share sold
   	b.	Huge will report a gain, in comprehensive income, of $1 per share sold
   	c.	Huge will record an increase in paid-in capital of $1 per share sold
   	d.	Huge will not make any entry to record this transaction.

Answer 1

SOLUTION:-

The correct answer is "a" as$ 1 per share sold is a realised income or gain, hence will be shown in income statement.

Option b is incorrect as unrealised gain or loss is shown under comprehensive income if the investment is still under play.

Option C is incorrect as the question is talking about investment in other entity not the shared issued by an entity so no changes in paid up capital

Option D is incorrect as the transaction has been held so will be recorded.

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