A parent company purchases 100 percent of the outstanding common stock in a subsidiary.What happens to the subsidiary the day after the purchase? Which of the following statements is FALSE?
A) The purchase by the parent company does not affect the subsidiary's books.
B) The subsidiary ceases to exist.
C) The subsidiary continues as a separate legal entity.
D) The subsidiary has its own set of books.

Question

Quizplus · Accepted Answer

When a parent company purchases 100 percent of the outstanding common stock in a subsidiary, the subsidiary does not cease to exist. It continues as a separate legal entity and maintains its own set of books, although it is fully owned by the parent company. The transaction primarily affects the parent company's books, particularly in how it consolidates the subsidiary's financial statements.

A Parent Company Purchases 100 Percent of the Outstanding Common