A parent company owns a 100% interest in a subsidiary.Recently, the subsidiary paid a 10% stock dividend.The dividend should be recorded on the books of the parent
A)at the par value or stated value of the shares received.
B)at the market value of the shares on the date of declaration.
C)at the market value of the shares on the date of distribution.
D)merely as a memo entry indicating that the cost of the original investment now is allocated to a greater number of shares.

Question

A parent company owns a 100% interest in a subsidiary.Recently, the subsidiary paid a 10% stock dividend.The dividend should be recorded on the books of the parent
A)​at the par value or stated value of the shares received.
B)​at the market value of the shares on the date of declaration.
C)​at the market value of the shares on the date of distribution.
D)​merely as a memo entry indicating that the cost of the original investment now is allocated to a greater number of shares.

Quizplus · Accepted Answer

Since the parent company owns a 100% interest in the subsidiary, the stock dividend does not result in any change in ownership or a cost to the parent company. Therefore, the dividend should only be recorded as a memo entry indicating that the cost of the original investment is now allocated to a greater number of shares. The choice A, B, and C are incorrect as they involve recording the dividend at a value that implies a cost or benefit to the parent company.

A Parent Company Owns a 100% Interest in a Subsidiary