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.

Question

Quizplus · Accepted Answer

When a parent company acquires new shares of a subsidiary at an amount greater than book value, the investment in the subsidiary increases as the parent is investing more capital into the subsidiary.

A Subsidiary Issues New Shares of Common Stock