A Parent Company Owns a Controlling Interest in a Subsidiary

question 43

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 $33 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 more than book value, the parent's investment account must be increased.
• C) Since the shares were sold for more than book value, the parent's investment account must be decreased.
• D) Since the shares were sold for more than book value but the parent did not buy any of the shares, the parent's investment account is not affected.
• E) None of the above.

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Definitions:

Organizational Comparisons

Involves analyzing and evaluating one organization against another to understand performance differences, strengths, weaknesses, or effectiveness in various areas.

Benchmarking

The process of comparing business processes and performance metrics to industry bests and best practices from other companies.

Performance Evaluations

A process used by organizations to assess and review an employee's job performance and productivity over a specific period.

Benchmarking Type

Refers to the various categories of benchmarking such as process, performance, or strategic, used by organizations to compare aspects of their operations against those of other entities to identify best practices.