USA Public Company Income

[SnRInc]

I came across a situation that I am not familiar with and need some assistance.

Company A "A" (public company) sells 5 Million worth of product to Company B "B" (public company) in exchange for B stock or cash. B will pay A within a time period of 4 months, and if paid all in stock A will own 70% of B.

If B eventually pays within the terms of the agreement in all stock, how does A adjust the income reported, or does it? Since B may or may not resell the product it purchased from A.

If B does not resell the product purchased and continues to pay for the product with stock, A ends up owning 70% of B and now technically owns 70% of the product that was sold to B. How will A adjust income based on the new asset acquirement of company B?


Hope someone can help. If you need further details please ask.

 

[kirby]

Once A owns 70% of B then Consolidated A has to eliminate 70% of the intercompany sale to B.
So when A sells $5 mm to B , A will eliminate 70% of that sale and report sales of $1.5 mm.
Then if B sells the $5mm, A only owns 70% of that sale and so will report sales from that of $3.5 mm more for a total of $5 mm for the sum of the two sales.