Indirect and Mutual Holdings Chapter 9 2003 Prentice

Learning Objective 1 Prepare consolidated statements when the parent company controls through indirect holdings.

Affiliation Structures The potential complexity of corporate affiliation structure is limited only by one’s

Direct Holdings Parent 80% Subsidiary A © 2003 Prentice Hall Business Publishing, Advanced Accounting

Direct Holdings Parent 80% 70% 90% Subsidiary A Subsidiary B Subsidiary C © 2003

Indirect Holdings Parent 80% Subsidiary A 70% Subsidiary B © 2003 Prentice Hall Business

Indirect Holdings Parent 80% 20% Subsidiary A Subsidiary B 40% © 2003 Prentice Hall

Mutual Holdings Parent 80% 10% Subsidiary A © 2003 Prentice Hall Business Publishing, Advanced

Mutual Holdings Parent 80% Subsidiary A 20% 40% 20% Subsidiary B © 2003 Prentice

Father-Son-Grandson Structure Poe Corporation acquires 80% of the stock of Shaw Corporation on January

Father-Son-Grandson Structure (in thousands) Poe Other assets $400 Investment in Shaw: (80%) 200 Investment

Computational Approaches for Consolidated Net Income Poe’s separate earnings $100, 000 Add: Poe’s share

Computational Approaches for Consolidated Net Income Combined separate earnings: Poe $100, 000 Shaw 50,

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Learning Objective 1 Prepare consolidated statements when the parent company controls through indirect holdings. © 2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 9 -2

Affiliation Structures The potential complexity of corporate affiliation structure is limited only by one’s imagination. © 2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 9 -3

Father-Son-Grandson Structure Poe Corporation acquires 80% of the stock of Shaw Corporation on January 1, 2003. Shaw acquires 70% of the stock of Turk Corporation on January 1, 2004. Both investments are made at book value. © 2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 9 - 10

Father-Son-Grandson Structure (in thousands) Poe Other assets $400 Investment in Shaw: (80%) 200 Investment in Turk: (70%) – $600 Liabilities $100 Capital stock 400 Retained earnings 100 $600 Separate earnings $100 Dividends $ 60 Shaw $195 – 105 $300 $ 50 200 50 $300 $ 50 $ 30 Turk $190 – – $190 $ 40 100 50 $190 $ 40 $ 20 © 2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 9 - 11

Computational Approaches for Consolidated Net Income Poe’s separate earnings $100, 000 Add: Poe’s share of Shaw’s separate earnings ($50, 000 × 80%) 40, 000 Add: Poe’s share of Turk’s separate earnings ($40, 000 × 80% × 70%) 22, 400 Poe’s net income and consolidated net income $162, 400 © 2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 9 - 12

Computational Approaches for Consolidated Net Income Combined separate earnings: Poe $100, 000 Shaw 50, 000 Turk 40, 000 Less: Minority interest expenses: Direct minority interest in Turk’s income ($40, 000 × 30%) $ 12, 000 Indirect minority interest in Turk’s income ($40, 000 × 70%) 5, 600 Direct minority interest in Shaw’s income ($50, 000 × 20%) 10, 000 Poe’s net income and consolidated net income $190, 000 – 27, 600 $162, 400 © 2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn 9 - 13