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:

Perceptual Map

A visual tool used in marketing to map consumer perceptions of brands or products on various dimensions.

Product

A good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers’ needs and is received in exchange for money or something else of value.

Four Steps

A general process or procedure that involves four distinct stages or phases, often used in a variety of contexts such as problem-solving or project management.

Market Segmentation

The process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers based on some type of shared characteristics.