A Subsidiary Issues New Shares of Common Stock

question 99

Multiple Choice

A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?

• A) The investment in subsidiary will decrease.
• B) Additional paid-in capital will decrease.
• C) Retained earnings will increase.
• D) The investment in subsidiary will increase.
• E) No adjustment will be necessary.

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Definitions:

Corporate Dividend Payout

The portion of earnings distributed to shareholders in the form of dividends.

Firm's Earnings

The profit of a company after all expenses and taxes have been deducted from revenue, indicating the company’s financial performance over a specified period.

Ex-Dividend Date

The specific date on which a declared dividend is set, after which a stock buyer is not entitled to the declared dividend.

Date of Record

This is the date set by a corporation upon which the shareholders must be on the company's books in order to receive a declared dividend or participate in corporate actions.