A Parent Company Owns a 70 Percent Interest in a Subsidiary

question 76

Multiple Choice

A parent company owns a 70 percent interest in a subsidiary whose stock has a valuation basis of $27 per share.On 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 the same per share amount as the the adjusted subsidiary value per share, the parent's investment account must be increased.
• C) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, the parent's investment account must be decreased.
• D) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the total acquisition amount for the new shares.
• E) None of these answer choices are correct.

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Definitions:

Dissolution Of A Corporation

The formal process of legally ending the existence of a corporation, involving settling debts, liquidating assets, and distributing any remaining assets to shareholders.

Liquidation Of Assets

This process involves converting assets into cash or cash equivalents by selling them, typically during the winding down or bankruptcy of a business.

Common Shareholders

Individuals or entities that hold common stock in a corporation, entitling them to dividends and voting rights, but placing them last in priority for company assets in case of liquidation.

Dissolve

To formally end or terminate an entity, such as a corporation, partnership, or marriage, through legal means.