4.4 Capitalization of Retained Earnings by a Subsidiary
ASC 810-10
45-9
Occasionally, subsidiaries capitalize retained earnings
arising since acquisition, by means of a stock dividend or
otherwise. This does not require a transfer to retained
earnings on consolidation because the retained earnings in
the consolidated financial statements shall reflect the
accumulated earnings of the consolidated group not
distributed to the owners of, or capitalized by, the
parent.
A parent that consolidates a legal entity, regardless of whether the parent wholly owns the legal entity, will generally be able to move assets and liabilities between the parent and the subsidiary at its discretion. When a parent causes a subsidiary to declare and issue a stock dividend (or perform a similar transaction), the transaction does not affect equity attributable to the parent or noncontrolling interest unless the stock dividend is not distributed pro rata to each owner. Pro rata distributions have no effect on equity attributable to the parent or noncontrolling interest because consolidated financial statements already present the retained earnings of the subsidiary and parent together. If the stock dividend is not distributed pro rata to each owner (i.e., the controlling interest and noncontrolling interest), a change in ownership interest without a change in control results, and the guidance discussed in Sections 7.1 through 7.1.3 will apply.