Under the Parent Company Method, Which of the Following Statements

question 10

Multiple Choice

Under the parent company method, which of the following statements pertaining to consolidated financial statements is TRUE?

• A) The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary.
• B) The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary as well as the parent's share of any acquisition differentials.
• C) The consolidated balance sheet is prepared by adding the fair market values of both the Parent and its subsidiary as well as the parent's share of any acquisition differentials.
• D) The consolidated balance sheet is prepared by adding together the fair market values of both the parent and its subsidiary.

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Definitions:

Net Working Capital

Net Working Capital is a measure of a company's short-term financial health, calculated as current assets minus current liabilities.

Present Value

The contemporary valuation of future financial inflows or a lump sum, adjusted for a specific rate of return.

Rate of Return

A measure of the gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Net Working Capital

Net Working Capital is a financial metric that calculates the difference between a company's current assets and its current liabilities, indicating the company’s short-term financial health.