When the Parent Purchases Some Newly Issued Shares of a Subsidiary

question 37

Multiple Choice

When the parent purchases some newly issued shares of a subsidiary, any adjustments resulting from the subsidiary stock sales should be made

• A)​at the end of the current fiscal year when the worksheet is prepared.
• B)​at the time of the sale when the equity method is used.
• C)​at the time of the sale if the cost method is used.
• D)​retroactively to the start of the current fiscal year.

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Definitions:

Beginning Inventory

The inventory value ready for sale at the onset of an accounting cycle.

Reported Net Income

The profit or loss of a company after all expenses have been deducted from revenues, as presented in financial statements.

Accrued Payroll Liabilities

Obligations for salaries and wages that have been incurred but not yet paid to employees.

Retained Earnings

The portion of net income that is not distributed as dividends to shareholders, but retained by the company for reinvestment in its operations.