In this type of relationship the controlling company is the parent and the controlled company is the subsidiary.
The parent company needs to issue consolidated financial statements at the end of the year to reflect this relationship.
Regular dividends are recorded as dividend income whenever they are declared.
If other factors exist that reduce the influence or if significant influence is gained at an ownership of less than 20%, the equity method may be appropriate (FASB interpretation 35 (FIN 35) underlines the circumstances where the investor is unable to exercise significant influence).
To account for this type of investment, the purchasing company uses the equity method.
Treatment to the acquired company: The acquired company records in its books the receipt of the payment from the acquiring company and the issuance of stock.
FASB 141 Disclosure Requirements: FASB 141 requires disclosures in the notes of the financial statements when business combinations occur.
It was possibly in fact the first recorded major industry consolidation In business, consolidation or amalgamation is the merger and acquisition of many smaller companies into a few much larger ones.
In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group company as consolidated financial statements.
When the amount of stock purchased is more than 50% of the outstanding common stock, the purchasing company has control over the acquired company.
Control in this context is defined as ability to direct policies and management.
Upon consolidation, the original organizations cease to exist and are supplanted by a new entity.