4. Is a gain or a loss that is recognized by a parent company on the disposal of part of its investment in common stock of a subsidiary eliminated in the preparation of consolidated financial statements? Explain.

5. Explain how the minority interest in net assets of a subsidiary is affected by the parent company’s ownership of 70% of the subsidiary’s outstanding common stock and 60% of the subsidiary’s outstanding 7%, cumulative, fully participating preferred stock.

6. Does the declaration of a stock dividend by a subsidiary necessitate any special treatment in working paper eliminations? Explain.

7. Describe how a subsidiary’s ledger accounts are affected when it acquires for its treasury all or part of its outstanding common stock owned by minority stockholders.

8. “The treasury stock treatment for shares of parent company common stock owned by a subsidiary overstates consolidated net income and understates the minority interest in net income of the subsidiary.” Do you agree? Explain.

9. Shares of its common stock held by a corporation in its treasury are not entitled to dividends.
However, a subsidiary receives dividends on shares of its parent company’s common stock owned by the subsidiary. For consolidated financial statements, these parent company shares are considered equivalent to treasury stock of the consolidated entity. Is there an inconsistency in this treatment? Explain.