When the parent purchases some newly issued shares of a subsidiary, any adjustments resulting from the subsidiary stock sales should be made
A)at the end of the current fiscal year when the worksheet is prepared.
B)at the time of the sale when the equity method is used.
C)at the time of the sale if the cost method is used.
D)retroactively to the start of the current fiscal year.

Question

When the parent purchases some newly issued shares of a subsidiary, any adjustments resulting from the subsidiary stock sales should be made
A)​at the end of the current fiscal year when the worksheet is prepared.
B)​at the time of the sale when the equity method is used.
C)​at the time of the sale if the cost method is used.
D)​retroactively to the start of the current fiscal year.

Quizplus · Accepted Answer

When the equity method is used, any adjustments resulting from the subsidiary stock sales should be made at the time of the sale. This is because under the equity method, the parent company recognizes its share of the subsidiary's net income or loss in the period it is earned or incurred, rather than waiting until dividends are received. Therefore, any changes to the subsidiary's equity affecting the parent's investment should also be recorded in the same period.

When the Parent Purchases Some Newly Issued Shares of a Subsidiary