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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