When a Parent Uses the Equity Method Throughout the Year

question 111

Multiple Choice

When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

• A) Parent company net income equals controlling interest in consolidated net income.
• B) Parent company retained earnings equals consolidated retained earnings.
• C) Parent company total assets equals consolidated total assets.
• D) Parent company dividends equals consolidated dividends.
• E) Goodwill is not recorded on the parent's books.

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Definitions:

IRR Estimate

An estimation of the Internal Rate of Return, which is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Asset's Total Assets

The summation of everything of value owned by a person, company, or organization, including both current and non-current assets.

Stand-alone Risk

The risk associated with a single asset or investment, without considering the asset's interaction or diversification effects within a portfolio.

Coefficient of Variation

A statistical measure of the dispersion of data points in a data series around the mean, used to assess the level of volatility relative to the mean.