A Parent Company Owns a 70 Percent Interest in a Subsidiary

question 5

Multiple Choice

A parent company owns a 70 percent 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 for $27 per share, and the parent buys its 70 percent interest in the new shares. 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 book value, the parent's investment account must be increased.
• C) Since the shares were sold for book value, the parent's investment account must be decreased.
• D) Since the shares were sold for book value and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the price of the new shares.
• E) None of these.

---

Definitions:

Berlin Blockade

A major international crisis of the Cold War in which the Soviet Union blocked the Western Allies' railway, road, and canal access to the sectors of Berlin under Western control from 1948 to 1949.

Separate Currency

The use of a distinct form of money by a region, country, or group within a larger economic system, often to assert financial independence or control.

Truman's Speech

Pertains to public addresses made by Harry S. Truman, the 33rd president of the United States, noted for articulating U.S. policy and values during his tenure.

Military Alliances

Agreements between nations to provide mutual support and cooperation in defense and military operations, reflecting strategic partnerships.