A parent company can record an investment in its subsidiary under either the cost or equity method.Which of the following statements about consolidated net income is true?
A)Consolidated net income is higher if the parent company uses the equity method rather than the cost method.
B)Consolidated net income is higher if the parent company uses the cost method rather than the equity method.
C)Consolidated net income is higher if the parent company uses the equity method only if the subsidiary is profitable and has not paid any dividends.
D)Consolidated net income is the same under both methods.

Question

Quizplus · Accepted Answer

Consolidated net income is calculated in the same way regardless of whether the parent company uses the cost or equity method. The consolidated net income is the sum of the subsidiary's income and the parent company's income from its investment in the subsidiary under either method. Therefore, choice D is correct.

A Parent Company Can Record an Investment in Its Subsidiary