The SEC Requires the Use of Push-Down Accounting in Some

question 8

Multiple Choice

The SEC requires the use of push-down accounting in some specific situations.Push-down accounting results in:

• A)​goodwill be recorded in the parent company separate accounts.
• B)​eliminating subsidiary retained earnings and paid-in capital in excess of par.
• C)​reflecting fair values on the subsidiary's separate accounts.
• D)​changing the consolidation worksheet procedure because no adjustment is necessary to eliminate the investment in subsidiary account.

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Definitions:

WACC

Weighted Average Cost of Capital - a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

EBIT

Earnings before interest and taxes, a measure of a firm's profitability that excludes interest and income tax expenses.

Financial Leverage

The use of borrowed funds to increase the potential return on investment, amplifying both potential gains and losses.