Which of the Following Statements Is True If a Company

question 46

Multiple Choice

Which of the following statements is true if a company owns more than 50% of the common shares of another company?

• A)The cost method should be used to account for the investment.
• B)A partnership exists.
• C)A parent-subsidiary relationship likely exists.
• D)The investment must be accounted for using the equity method.

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Definitions:

Indirect Bankruptcy Costs

Expenses that are not directly tied to the bankruptcy filing process but arise due to the reduced ability to conduct business efficiently, such as lost sales, diminished reputation, and impaired creditworthiness.

Optimal Capital Structure

The most favorable mix of debt and equity financing a firm can use for funding, minimizing the cost of capital and maximizing shareholder value.

Financial Markets

Financial Markets are platforms that facilitate the trading of financial instruments such as stocks, bonds, currencies, and derivatives.

Capital Structure

The mix of various forms of capital used by firms to fund their operations and growth, typically referring to the blend of debt and equity.