If one company owns more than 50% of the common stock of another company
A) a partnership exists
B) a parent-subsidiary relationship exists
C) the company whose stock is owned must be liquidated
D) the fair value method should be used to account for the investment

Question

Quizplus · Accepted Answer

If one company owns more than 50% of the common stock of another company, it creates a parent-subsidiary relationship. The company that owns the majority stock becomes the parent company and the other company becomes the subsidiary. The parent company has control over the subsidiary and its operations. The fair value method may be used to account for the investment, but it is not the primary issue related to the ownership of the majority stock. A partnership does not exist because there is no joint ownership or sharing of profits and losses. Liquidation of the subsidiary is not mandatory as it can continue to operate as a subsidiary under the parent company.

If One Company Owns More Than 50% of the Common