Manke Company owns a 90% interest in Neske Company.Neske, in turn, owns a 10% interest in Manke.Neske has 10,000 common stock shares outstanding, and Manke has 20,000 common stock shares outstanding.How many shares would each firm show as outstanding in the consolidated balance sheet, under the treasury stock method?
A)Manke, 20,000
B)Manke, 20,000; Neske, 1,000
C)Manke, 18,000; Neske, 1,000
D)Manke, 18,000

Question

Manke Company owns a 90% interest in Neske Company.Neske, in turn, owns a 10% interest in Manke.Neske has 10,000 common stock shares outstanding, and Manke has 20,000 common stock shares outstanding.How many shares would each firm show as outstanding in the consolidated balance sheet, under the treasury stock method?
A)​Manke, 20,000
B)​Manke, 20,000; Neske, 1,000
C)​Manke, 18,000; Neske, 1,000
D)​Manke, 18,000

Quizplus · Accepted Answer

Under the treasury stock method, the shares held by the parent company are not considered outstanding. Therefore, for Manke, the outstanding shares would be 20,000 - (20,000 x 10%) = 18,000. For Neske, its 10% ownership in Manke means that only 10% of Manke's outstanding shares are considered outstanding for Neske, which is 18,000 x 10% = 1,800. However, Neske only has 10,000 shares outstanding, so it can only hold 1,000 shares as treasury stock. Therefore, Neske's outstanding shares in the consolidated balance sheet would be 10,000 - 1,000 = 9,000. Therefore, the correct choice is C, where Manke would show 18,000 shares as outstanding and Neske would show 9,000 shares as outstanding.

Manke Company Owns a 90% Interest in Neske Company