A Parent Company Purchases 100 Percent of the Outstanding Common

question 41

Multiple Choice

A parent company purchases 100 percent of the outstanding common stock in a subsidiary.What happens to the subsidiary the day after the purchase? Which of the following statements is FALSE?

• A) The purchase by the parent company does not affect the subsidiary's books.
• B) The subsidiary ceases to exist.
• C) The subsidiary continues as a separate legal entity.
• D) The subsidiary has its own set of books.

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Definitions:

General Journal

A primary accounting record used to record all types of accounting transactions before they are posted to individual accounts in the general ledger.

Legal Fees Revenue

Income earned by businesses or individuals through providing legal services.

General Journal

A fundamental accounting ledger where financial transactions are initially recorded before being transferred to specific accounts in the ledger.

Accounts Receivable

Money owed to a business by its customers for goods or services delivered on credit.