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.

---

Definitions:

Final Goods

Products that have been processed to their final form and are ready for use by consumers or businesses, as opposed to intermediate goods used in production.

GDP

The total market or monetary worth of all completed goods and services produced inside a nation's boundaries over a certain period is known as the Gross Domestic Product.

GDP Deflator

A measure of the price level for all new, domestically produced, final goods and services in an economy, used to convert nominal GDP into real GDP.

Base Year

A specific year against which economic growth or other economic variables are measured.