A Parent Company Can Record Its Investment in a Subsidiary

question 31

Multiple Choice

A parent company can record its investment in a subsidiary using either the cost or the equity method. Which account will appear on the financial statements under the equity method, but not under the cost method?

• A)Investment in subsidiary
• B)Unamortized fair value adjustments
• C)Equity earnings of subsidiary
• D)Goodwill

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Definitions:

Operating Activities

Operating activities refer to the day-to-day functions of a business involved in producing and selling its goods or services, which are reflected in its cash flow.

Financing Activities

Transactions that involve raising capital and repaying investors, including issuing equity, obtaining loans, and repaying debt.

Statement of Cash Flows

The statement of cash flows is a financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.