Case .12

In a classroom discussion of the appropriate balance sheet display of the minority interest in net assets of a consolidated subsidiary, student Michael expressed a dislike for both the economic unit concept favored by the FASB and the alternative parent company concept.

According to Michael, the minority interest in net assets of a subsidiary is neither a part of consolidated stockholders’ equity, as suggested by the economic unit concept, nor a liability, as indicated by the parent company concept. Michael favored displaying minority interest in the “mezzanine” section of the consolidated balance sheet, between liabilities and stockholders’ equity. Michael suggested a precedent for such display in the Securities and Exchange Commission’s comparable mandated display for redeemable preferred stock, per Section 211 of the SEC’s Codification of Financial Reporting Policies. Student Roger disagreed with student Michael, pointing out that the FASB’s Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements,” does not identify an element entitled mezzanine.

Instructions

Do you support the view of student Michael or of student Roger? Explain.