The SEC and FASB Has Recommended That a Parent Corporation

question 18

Multiple Choice

The SEC and FASB has recommended that a parent corporation should consolidate the financial statements of the subsidiary into its financial statements when it exercises control over the subsidiary, even without majority ownership. In which of the following situations would control NOT be evident?

• A) Access to subsidiary assets is available to all shareholders.
• B) Dividend policy is set by the parent.
• C) The subsidiary does not determine compensation for its main employees.
• D) Substantially all cash flows of the subsidiary flow to the controlling shareholders.

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Definitions:

Historical Cost

The initial cost of an asset or investment when it was first purchased.

Patents

Legal documents granting exclusive rights to inventors for their innovations, preventing others from making, using, or selling the invention for a certain period of time.

Accounts Receivable

Money that is owed to a company by its customers for goods or services that have been delivered but not yet paid for.