Two reasons for the U.S. GAAP treatment of reporting additional investments in subsidiaries:

1. Identifyingthe acquirer- For an acquired company's separatefinancial statements the pushdown election is available but not for an acquirer'sconsolidated financial statement, because the acquirerhas to apply for the businessaccounting. The person who controls the company in a business combination is known as the acquirer.

Example: Identifying the accounting acquirerparent company acquires100% of target from the seller. New company is formed by parent company through an infusion of cash which the new company uses to acquireall of the shares of target.

2. Common control transfers may still result in pushdown - U.S. GAAP points out that an enterprise that receivesnet assets, that has to record those net assets at the parent's book value rather than at the carrying amounts, if the costs are different.

Example: Transfer of net assets or equity interests between entities under common control parent company has two wholly-owned subsidiaries, subsidiaryA and subsidiaryB. SubsidiaryB was acquiredin a preceding reporting period by the parent company and pushdown accounting was not applied. In the current reporting period, parent company contributes its equity interest in sub B to sub A.

Main characteristics of variable interest entity (VIE):

• It is the entity in which the investor holds a controlling interest that is not based on the majority of voting rights. This party could be an equity investor or some other capital provider.
• Some point of time there is debt holders who have the control when the organization is inefficiently capitalized.
• In some cases equity holders also do not have voting rights over the activities of the entity.
• Situations are also there, the voting rights of equity holders are not proportionate.

Usefulnessof variable interest entity to investors:

• VIE units can be established to reduce the risk factor for the parent company.
• VIE also financing new point projects, which will be beneficial for country's growth.
• It creates tax benefits for theparent company for these entities only interest associated with the note would be tax deductible.
• It protects the interest of their investors.

What if a company was worth $925,000 and XZ Company about a 50% stake in the company for $525,000, how would this transaction be recorded for XZ Company?

If a bond is issued a premium of $106,000 and the face value was $100,000 what is the journal entry to record the issuance of this bond?