When a Parent Uses the Initial Value Method Throughout the Year

question 31

Multiple Choice

When a parent uses the initial value method throughout the year to account for investment in a subsidiary,which of the following statements is true before making adjustments on the consolidated worksheet?

• A)Parent company net income equals consolidated net income
• B)Parent company retained earnings equals consolidated retained earnings
• C)Parent company total assets equals consolidated total assets
• D)Parent company dividends equals consolidated dividends
• E)Goodwill is never recognized

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Definitions:

Constant Growth Model

A model for valuing a stock by assuming it will pay dividends that grow at a constant rate indefinitely.

Dividend Yield

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Expected Return

A synonym for Expected Rate of Return, signifying the profit or loss investors anticipate from an investment, commonly shown as a percentage.

Required Return

The minimum expected return an investor demands for a specific investment, considering the risk associated with it.