A company owning a majority (but less than 100%) of another company's voting shares on the date of acquisition should account for its subsidiary (in its consolidated balance sheet):
A) by including only its share of the fair market values of the subsidiary's net assets.
B) by including only its share of the book values of the subsidiary's net assets.
C) by including 100% of the fair market values of the subsidiary's net assets.
D) by including 100% of the fair market values of the subsidiary's net assets and accounting for any unowned portion of the subsidiary's voting shares using the Non-Controlling Interest account.

Question

Quizplus · Accepted Answer

When a company acquires a majority of another company's voting shares, it is considered to have control over the subsidiary. Therefore, the parent company should include 100% of the fair market values of the subsidiary's net assets in its consolidated balance sheet. However, since the parent company does not own 100% of the subsidiary, the remaining portion should be accounted for using the Non-Controlling Interest (NCI) account. This account reflects the ownership interest of outside shareholders in the subsidiary and is reported as a separate line item in the consolidated balance sheet. Therefore, choice D is the best answer.

A Company Owning a Majority (But Less Than 100%) of Another