A Parent Company Records an Investment in Its Subsidiary Using

question 14

Multiple Choice

A parent company records an investment in its subsidiary using the equity method. Which of the following statements about consolidated net income is true?

• A)Consolidated net income is higher than the net income under the equity method.
• B)Consolidated net income is lower than the net income under the equity method.
• C)Consolidated net income is higher than the net income under the equity method only if the subsidiary is profitable and has not paid any dividends.
• D)Consolidated net income is the same as the net income under the equity method.

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Definitions:

Market Interest Rate

The market interest rate is the rate of interest that is commonly charged or paid on loans and bonds in the current market.

Coupon Rate

The interest rate paid by a bond issuer on the bond's face value, determining the periodic interest payments to bondholders.

Semiannually

Occurring twice a year; typically refers to payments, interest calculations, or periods within a financial context.

Market Interest Rate

The prevailing rate of interest available in the marketplace on loans and deposits, influenced by various economic factors.