When a subsidiary owns shares of the parent, the subsidiary's investment account
A)should be accounted for using the equity method.
B)is not eliminated so the subsidiary's investment in the parent is displayed on the balance sheet.
C)is maintained at its original cost since the shares have no claim on income.
D)may be accounted for using the cost, equity or sophisticated equity method.

Question

When a subsidiary owns shares of the parent, the subsidiary's investment account
A)​should be accounted for using the equity method.
B)​is not eliminated so the subsidiary's investment in the parent is displayed on the balance sheet.
C)​is maintained at its original cost since the shares have no claim on income.
D)​may be accounted for using the cost, equity or sophisticated equity method.

Quizplus · Accepted Answer

The subsidiary's investment in the parent is maintained at its original cost because these shares do not have a claim on the income of the parent company. This approach reflects the investment without implying any income generation from these shares for the subsidiary.

When a Subsidiary Owns Shares of the Parent, the Subsidiary's