Tree, Inc., has held a 10 percent interest in the stock of Limb Company for seve

Question

Tree, Inc., has held a 10 percent interest in the stock of Limb Company for several years. Because of the level of ownership, this investment has been accounted for using the fair- value method. At the beginning of the current year, Tree acquires an additional 70 percent interest, which provides the company with control over Limb. In preparing consolidated financial statements for this business combination, how does Tree account for the previous 10 percent ownership interest? (must be 400 words)

Explanation / Answer

After Tree gains controls, earlier 10% ownership will be inclued at fair value as part of total consideration transferred by the Tree as a part of acquisition.

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