When a Parent Uses the Equity Method Throughout the Year

question 5

Multiple Choice

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

• A)Parent company net income equals controlling interest in 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 may need to be recorded

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Definitions:

Expected Return

The weighted average of all possible returns from an investment, factoring in the probabilities of each outcome.

Variance

A measure of the dispersion or spread between numbers in a data set, indicating how much the numbers differ from the mean.

Portfolio Risk

The risk associated with holding a portfolio of investments, reflecting the potential for loss due to market volatility.

Diversified Away

A strategy to reduce risk by allocating investments among various financial instruments, industries, or other categories to avoid overexposure to any single asset or risk.