Target Is a Wholly Owned Subsidiary of MegaCorp Inc

question 69

Multiple Choice

Target is a wholly owned subsidiary of MegaCorp Inc. MegaCorp supplies a number of services to target. Target sells some of its products to other MegaCorp subsidiaries. Target also buys products from other MegaCorp subsidiaries that are used as inputs in producing Target's products. Which of the following adjustments should the acquirer make to Target's financial statements before valuing the firm?

• A) Deduct the actual cost of services required by Target that are being supplied by the parent without charge from target's cost of sales.
• B) Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at below market prices and the actual market prices for such products from Target's cost of sales.
• C) Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at above market prices and actual market prices from Target's cost of sales
• D) A and B only.
• E) None of the above.

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Definitions:

Right Half

Refers possibly to the right hemisphere of the brain, associated with creative and holistic thinking, or simply the right portion of any symmetrical object; the specific context is required for precise definition which here is not provided.

Logic

A systematic method of reasoning that allows an individual to derive valid conclusions from a set of premises or facts.

Intuition

The ability to understand or know something immediately, without the need for conscious reasoning.

Learned Patterns

Behaviors, attitudes, or skills acquired through experience or education rather than being innate.