A Parent Company Owns a 70% Interest in a Subsidiary

question 100

Multiple Choice

A parent company owns a 70% interest in a subsidiary whose stock has a valuation basis of $27 per share. On the last day of the year, the subsidiary issues new shares for $27 per share, and the parent buys its 70% interest in the new shares. Which of the following statements is true?

• A) Since the sale was made at the end of the year, the parent's investment account is not affected.
• B) Since the shares were sold for the same per share amount as the adjusted subsidiary value per share, the parent's investment account must be increased.
• C) Since the shares were sold for the same per share amount as the adjusted subsidiary value per share, the parent's investment account must be decreased.
• D) Since the shares were sold for the same per share amount as the adjusted subsidiary value per share, and the parent bought 70% of the shares, the parent's investment account is not affected except for the total acquisition amount for the new shares.
• E) None of these answer choices are correct.

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Definitions:

Authoritarian

A leadership style characterized by individual control over all decisions and little input from group members, often involving strict rules and regulations.

Expatriates

Employees who are temporarily or permanently living and working in a country other than their native country.

Third-Country Nationals

Employees who are working in a country that is neither their home country nor the country of the company for which they work.