Subsidiary/stock return/income statement
Posted: Mon Apr 12, 2021 11:56 pm
A couple questions as this is not making sense to me.
1. When creating a subsidiary, then going to the stock exchange to see the returns of each of your stocks, why does the newly created company show a gain in the amount of the initial capital that was given to the company? For example, if you create a subsidiary and give it capital of $50M to start with, the market value will be $50M under the stock section and it will also show a gain of $50M. However, shouldn’t the gain be $0?
2. Another related question to #1 above. When you go to the income statement for the parent company, the stock return section of the income statement will show a $50M gain in this section and a corresponding gain in the net income section. However, the parent company has done nothing to earn any income, all they did was set up a subsidiary company. It seems like this line should also be $0 on the income statement. It should only impact the balance sheet.
1. When creating a subsidiary, then going to the stock exchange to see the returns of each of your stocks, why does the newly created company show a gain in the amount of the initial capital that was given to the company? For example, if you create a subsidiary and give it capital of $50M to start with, the market value will be $50M under the stock section and it will also show a gain of $50M. However, shouldn’t the gain be $0?
2. Another related question to #1 above. When you go to the income statement for the parent company, the stock return section of the income statement will show a $50M gain in this section and a corresponding gain in the net income section. However, the parent company has done nothing to earn any income, all they did was set up a subsidiary company. It seems like this line should also be $0 on the income statement. It should only impact the balance sheet.