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.

Recognize the role of taxes, bankruptcy costs, and financial distress in shaping capital structure decisions.

Understand the procedures and priorities in bankruptcy proceedings.

Understand the role and impact of effective production and operations management in lowering costs, increasing quality, and fostering innovation.

Differentiate between standardized and custom parts in the context of production.

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Definitions:

Cash Movement

The inflow and outflow of cash within a business, highlighting the company's ability to generate cash and manage expenses.

Financial Markets

Platforms or systems that facilitate the trading of financial instruments such as stocks, bonds, currencies, and derivatives, allowing for the allocation of resources over time.

Long-Term Securities

Financial instruments or investments that are meant to be held or mature over a period longer than one year.

Capital Markets

Markets where individuals and institutions trade financial securities, including stocks and bonds, over long periods.