Asked by Ashley Lowell on Jul 22, 2024
Verified
If one company owns more than 50% of the common stock of another company
A) the cost method should be used to account for the investment.
B) a partnership exists.
C) a parent-subsidiary relationship exists.
D) the company whose stock is owned must be liquidated.
Parent-Subsidiary Relationship
A corporate structure where one company (the parent) controls another company (the subsidiary) by owning a majority of its stock.
Common Stock
Common Stock represents ownership shares in a corporation, giving holders voting rights and a share in the company’s profits via dividends.
Cost Method
An accounting approach where investments are recorded at their acquisition cost, without subsequent change for market value fluctuations.
- Identify the relationship and accounting treatment for parent and subsidiary companies.
Verified Answer
ZS
zaidoon sulaimanJul 23, 2024
Final Answer :
C
Explanation :
If one company owns more than 50% of the common stock of another company, a parent-subsidiary relationship exists. This means the owning company (the parent) has significant control over the operations of the other company (the subsidiary). Therefore, the equity method of accounting should be used to account for the investment.
Learning Objectives
- Identify the relationship and accounting treatment for parent and subsidiary companies.