Asked by Michaela Pfaff on Jul 09, 2024
Verified
On January 1, 2021, Parent Corporation acquired a controlling interest in the voting common stock of Foxboro Co. At the same time, Parent purchased 60% of Foxboro's outstanding preferred stock. In preparing consolidated financial statements, how should the acquisition of the preferred stock be accounted for?
Controlling Interest
An ownership interest in a business that allows the holder significant influence or control over its operations and decisions, typically through the possession of more than 50% of voting shares.
Voting Common Stock
Common shares that entitle shareholders to vote on company policies and board member selections.
Preferred Stock
A type of stock that grants holders priority over common stockholders in terms of dividend payments and assets in the event of liquidation, often with fixed dividend rates.
- Recognize the traits of variable interest entities (VIEs) and comprehend the necessities for consolidation.
- Understand the reporting of noncontrolling interests within consolidated financial statements.
Verified Answer
RL
rahma lintangJul 12, 2024
Final Answer :
The investment in preferred stock account and Foxboro's preferred stock balance should be eliminated in consolidation so that only the parent's equity remains. No gain or loss should be recognized.
Learning Objectives
- Recognize the traits of variable interest entities (VIEs) and comprehend the necessities for consolidation.
- Understand the reporting of noncontrolling interests within consolidated financial statements.