Consider a sale of stock by a subsidiary to parties outside the consolidated entity.This transaction requires an adjustment of the parent's investment and additional paid-in capital accounts except when
A)the shares are sold below book value per share.
B)the shares are sold above book value per share.
C)the shares are sold at book value per share.
D)the shares are sold at market value.

Question

Quizplus · Accepted Answer

When the shares are sold at book value per share, there is no gain or loss on the transaction and hence, there is no need for an adjustment in the parent's investment and additional paid-in capital accounts. For shares sold below or above book value per share, a gain or loss is realized and an adjustment is required. When shares are sold at market value, it may or may not be at book value per share, so an adjustment would depend on whether the sale price is above, below, or at book value per share.

Consider a Sale of Stock by a Subsidiary to Parties