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:

Personal Connections

Relationships or networks formed between individuals based on mutual interests, shared values, or professional affiliations.

Foreign Currency Valuations

The process of determining the value of foreign currencies in comparison to one's own currency for financial reporting and trading.

Globalizing Operations

The process of expanding business operations across international borders, aiming for a global presence and market.

Individualism

A cultural orientation in which people belong to loose social frameworks and their primary concern is for themselves and their families.