1. Indirect and Mutual Holdings
Chapter 9

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

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

4. Direct Holdings
Single subsidiary
Parent
Subsidiary A
80%

5. Multiple subsidiaries
Direct Holdings
Multiple subsidiaries
Parent
Subsidiary B
70%
80%
90%
Subsidiary A
Subsidiary C

6. Indirect Holdings
Father-son-grandson
Parent
Subsidiary A
80% B
70%

7. Connecting affiliates
Indirect Holdings
Connecting affiliates
Parent
80%
20%
Subsidiary A
Subsidiary B
40%

8. Mutual Holdings
Parent mutually owned
Parent
Subsidiary A
80%
10%

9. Connecting affiliates mutually owned
Mutual Holdings
Connecting affiliates mutually owned
Parent
80%
20%
40%
Subsidiary A
Subsidiary B
20%

10. 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.

11. Father-Son-Grandson Structure
(in thousands) Poe Shaw Turk
Other assets $400 $195 $190
Investment in Shaw: (80%) – –
Investment in Turk: (70%) – –
$600 $300 $190
Liabilities $100 $ 50 $ 40
Capital stock
Retained earnings
Separate earnings $100 $ 50 $ 40
Dividends $ 60 $ 30 $ 20

12. Computational Approaches for Consolidated Net Income
Poe’s separate earnings $100,000
Add: Poe’s share of Shaw’s separate earnings
($50,000 × 80%) ,000
Add: Poe’s share of Turk’s separate earnings
($40,000 × 80% × 70%) ,400
Poe’s net income and consolidated net income $162,400

13. Computational Approaches for Consolidated Net Income
Combined separate earnings:
Poe $100,000
Shaw ,000
Turk ,000 $190,000
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%) ,600
Shaw’s income ($50,000 × 20%) ,000 – 27,600
Poe’s net income and consolidated net income $162,400