A Subsidiary Issues New Shares of Common Stock at an Amount

question 1

Multiple Choice

A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true?

• A) The parent's additional paid-in capital will be increased.
• B) The parent's investment in subsidiary will be increased.
• C) The parent's retained earnings will be increased.
• D) The parent's additional paid-in capital will be decreased.
• E) The parent's retained earnings will be decreased.

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Definitions:

Cation

A positively charged ion that is created when an atom loses one or more electrons, resulting in more protons than electrons.

Propensity

A natural inclination or tendency to behave in a particular way.

Hydrate

A compound that contains water molecules bound to another compound or within its crystal structure.

Benzophenone

A compound used in organic synthesis and as a photoinitiator, characterized by a central benzene ring bonded to two carbonyl groups.