A Subsidiary Issues New Shares of Common Stock

question 99

Multiple Choice

A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?

• A) The investment in subsidiary will decrease.
• B) Additional paid-in capital will decrease.
• C) Retained earnings will increase.
• D) The investment in subsidiary will increase.
• E) No adjustment will be necessary.

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Definitions:

Existing Stock

Securities or inventory that are currently held or available for sale in the market.

Tombstones

Advertisements in financial publications summarizing the terms of a new issue of securities.