A Parent Company Owns a Controlling Interest in a Subsidiary

question 33

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 the above.

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Definitions:

Approach-avoidance Conflict

A psychological conflict characterized by a situation that has both attractive and repelling aspects, making decision-making difficult.

Job Transfer

Refers to the process of moving an employee from one job or department within the company to another.

Termination

The process of ending employment or agreement within an organization, either voluntarily or involuntarily.

Conflict Resolution

Occurs when the reasons for a conflict are eliminated.