A Parent Corporation Owns 55% of the Outstanding Voting Common

question 27

Multiple Choice

A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary.The parent has control over the subsidiary.Which of the following statements is correct?

• A)The parent corporation must prepare consolidated financial statements for the economic entity.
• B)The parent corporation must use the fair value method.
• C)The parent company may use the equity method but the subsidiary cannot be consolidated.
• D)The parent company can use the equity method or the fair value/cost method.

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Definitions:

Current Liabilities

Financial obligations of a business that are due and payable within one year, including accounts payable, short-term debt, and other short-term obligations.

Quick Ratio

The quick ratio, or acid-test ratio, measures a company's ability to meet its short-term obligations with its most liquid assets.

Current Ratio

A financial metric used to evaluate a company's ability to pay short-term obligations, calculated by dividing current assets by current liabilities.

Fixed Asset Turnover

A financial ratio that measures how efficiently a company is using its fixed assets to generate sales.