A Parent Company Owns a Controlling Interest in a Subsidiary

question 96

Multiple Choice

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true?

• A) Since the sale was made at the end of the year, the parent's investment account is not affected.
• B) Since the shares were sold for less than book value, the parent's investment account must be increased.
• C) Since the shares were sold for less than book value, the parent's investment account must be decreased.
• D) Since the shares were sold for less than book value but the parent did not buy any of the shares, the parent's investment account is not affected.
• E) None of these.

---

Definitions:

Theories In Use

Implicit frameworks or models that guide the behavior and decision-making processes of individuals and organizations in practice.

Systems Thinking

A holistic approach to analysis that focuses on the way that a system's constituent parts interrelate and how systems work over time within the context of larger systems.

Entire Organization

The whole structure of a company or institution, including all employees, departments, and divisions.

Individual Behaviours

Individual Behaviours refer to the actions and reactions of an individual in various situations, influenced by their character, emotions, and external factors.