If a parent acquires all of the additional common shares issued by its subsidiary at greater than book value,which of the following statements is true?

Question

Quizplus · Accepted Answer

If a parent acquires all of the additional common shares issued by its subsidiary at greater than book value, it means the parent paid more than the subsidiary's recorded value for those shares. As a result, the investment in subsidiary will increase because the parent has paid more for the shares than the recorded value on the parent's books. Additional paid-in capital will not decrease because the shares were bought at a premium, and retained earnings will not increase because no profit or income was earned by the subsidiary from the issuance of the additional shares. Therefore, option D is the correct answer.

If a Parent Acquires All of the Additional Common Shares