When a Subsidiary Purchases Shares of the Parent, on a Consolidated

question 22

Multiple Choice

When a subsidiary purchases shares of the parent, on a consolidated basis:

• A)​a determination and distribution schedule must be completed to determine if goodwill is present.
• B)​it is considered to be the parent's purchase of treasury stock.
• C)​an elimination entry must be made for the subsidiary's share of the parent's income.
• D)​None of the above is correct.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life.

Equipment

Tangible property or assets, excluding real estate and vehicles, used in the operation of a business to produce goods or services.

Unearned Revenue

Money received by a company for goods or services yet to be delivered or provided, recorded as a liability.

Liability

An obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services, or other yielding of economic benefits in the future.