A Parent Company Owns a Controlling Interest in a Subsidiary

question 96

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 $25 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 less than book value, the parent's investment account must be increased.
• C) Since the shares were sold for less than book value, the parent's investment account must be decreased.
• D) Since the shares were sold for less than book value but the parent did not buy any of the shares, the parent's investment account is not affected.
• E) None of these.

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Definitions:

Control Group

In experimental research, a group of subjects that does not receive the experimental treatment, used as a baseline to compare the effects of that treatment.

Participant-observation

A qualitative research method where the researcher immerses themselves in a group or community to observe and participate in their activities, gaining insights from the inside.

Reliability

The degree to which the results of a measurement or test are consistent and repeatable under similar conditions.

Sociologists

Scholars who study social behavior, structures, and functions, and how they influence human interactions and societal development.