When a Parent-Subsidiary Relationship Exists Between Two Companies

question 34

Multiple Choice

When a parent-subsidiary relationship exists between two companies:

• A)the subsidiary company will keep one set of accounting records covering both companies.
• B)the parent company will keep one set of accounting records covering both companies.
• C)both the parent and the subsidiary will continue to keep their own separate accounting records as if the parent-subsidiary relationship does not exist.
• D)the parent company must use the cost method to account for the subsidiary.

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Definitions:

Prevention Cost

Costs incurred to prevent defects in products or services, including training, quality control, and equipment maintenance.

Internal Failure Cost

Costs associated with defects found before a product or service is delivered to the customer, such as scrap and rework expenses.

Value-Added Activity

An activity that is needed to meet customer requirements.

Preventive Maintenance

Preventive maintenance involves regularly scheduled inspections, service, and repairs of equipment and facilities to prevent unexpected breakdowns and extend their useful life.