The first issue you will learn about is how subsidiary stock dividends impact the parent. Different procedures are used depending on whether the parent uses the simple equity method, the sophisticated equity method, or the cost method.
1. Of the three methods discussed, which is the most complicated in your opinion? Why?
2. If you were the CFO of the parent of a consolidated group, which method would you choose? Explain your rationale for your decision.
3. When converting from cost to equity, what considerations need to be made? Why? Explain.