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.

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Definitions:

Original Cost

The initial price paid to acquire an asset before any depreciation or amortization.

Net Income

The earnings a company retains following the deduction of all costs and taxes from its overall income.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since it was put into use, subtracted from its original cost on the balance sheet.

Delivery Truck

A vehicle used by businesses primarily for transporting goods to customers or between locations.