A Parent Company Owns a Subsidiary's Preferred and Common Shares

question 1

Multiple Choice

A parent company owns a subsidiary's preferred and common shares. How should the acquisition of the preferred shares be treated?

• A)In the same manner as common shares
• B)As a retirement of shares
• C)As an expense
• D)As a deduction from retained earnings

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Definitions:

Diminishing Marginal Product

The principle stating that as one inputs more of a factor of production while holding other inputs constant, the added output produced from each additional unit of the variable input eventually decreases.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, or loan payments.

Marginal Cost

The added expense incurred by creating one more unit of a product or service.

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the quantity of output produced.