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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