If subsidiary stock is redeemed or sold outside the group when an excess loss account exists,the selling parent corporation recognizes capital gain income equal to the account balance.

Question

Quizplus · Accepted Answer

This statement is true. When subsidiary stock is redeemed or sold outside the group and an excess loss account exists, the selling parent corporation recognizes a capital gain income equal to the excess loss account balance. This is done to prevent the parent corporation from avoiding taxes by offsetting gains from the sale of the subsidiary stock with losses from the subsidiary's operations.

If Subsidiary Stock Is Redeemed or Sold Outside the Group