Which of the Following Statements Is True Regarding the Sale

question 1

Multiple Choice

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations?

• A) If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss.
• B) If control continues, the difference between selling price and acquisition value is an unrealized gain or loss.
• C) If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital.
• D) If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss.
• E) If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings.

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Definitions:

Shutdown Rule

A short-term economic decision rule stating that a firm should continue operating if the revenue covers variable costs, even if it cannot cover fixed costs in full.

Average Variable Cost

The variable cost (such as raw materials, direct labor) per unit of output, calculated by dividing total variable costs by the quantity of output.

Zero Output

A situation where a business or economic process results in no production or creation of goods or services, often indicating a shutdown or inefficiency.

Profit Maximizing

refers to a firm's goal of achieving the highest possible profit, where marginal costs equal marginal revenue, guiding pricing and production decisions.