If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the

Question

Quizplus · Accepted Answer

If the parent company owns 90% of the subsidiary company's outstanding common stock, then it has significant control over the subsidiary's operation and financial decisions. In this case, the equity method is generally used to account for the income of the subsidiary, which involves recording the parent company's share of the subsidiary's profits or losses as an adjustment to the investment account. This method is appropriate when the parent has the ability to significantly influence the subsidiary's operating and financial policies but does not control it completely. The cost method is used when the parent company has no significant influence or control over the subsidiary, and the fair value method is used when the parent company holds the investment in the subsidiary as a short-term trading security. The divesture method is not a generally accepted accounting method for accounting for subsidiary income.

If the Parent Company Owns 90% of the Subsidiary Company's