A Parent Company Owns a Controlling Interest in a Subsidiary

question 43

Multiple Choice

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. Which of the following statements is true?

• A) Since the sale was made at the end of the year, the parent's investment account is not affected.
• B) Since the shares were sold for more than book value, the parent's investment account must be increased.
• C) Since the shares were sold for more than book value, the parent's investment account must be decreased.
• D) Since the shares were sold for more than book value but the parent did not buy any of the shares, the parent's investment account is not affected.
• E) None of the above.

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Definitions:

Gangster Film

A genre of movies that focuses on the lives of criminals, particularly those involved in organized crime.

MGM

Metro-Goldwyn-Mayer, a leading film, television, and entertainment company known for its iconic roaring lion logo and a rich history of cinematic productions.

Warner Bros.

An American entertainment company known for producing films, television shows, and music.

Gangster Genre

The gangster genre encompasses films that focus on the lives of criminals, especially those involved in organized crime.