Plant company owns 80% of the common stock of Surf Company. Surf Company also has outstanding preferred stock. Plant Company owned none of the preferred stock prior to January 1, 20X5. Plant Company purchased 100% of the outstanding preferred stock on January 1, 20X5, at a price in excess of book value. The result of this transaction with regard to the consolidated statements is that

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From a consolidated viewpoint, the parent's purchase of subsidiary preferred stock is viewed as a retirement of that stock. When the price paid is more than the preferred equity retired, the excess would first offset against the paid-in capital in excess of par applicable to the preferred equity. Any remaining balance would be taken from controlling retained earnings and viewed as a retirement dividend.

Plant Company Owns 80% of the Common Stock of Surf