Parent has purchased additional shares of subsidiary stock.If the original investment blocks are carried at cost, the conversion to simple equity is based upon
A)the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings when the first block was acquired.
B)the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings when the block giving a controlling interest was acquired.
C)the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings of each block at its acquisition.
D)the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings when the last block was acquired.

Question

Parent has purchased additional shares of subsidiary stock.If the original investment blocks are carried at cost, the conversion to simple equity is based upon
A)​the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings when the first block was acquired.
B)​the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings when the block giving a controlling interest was acquired.
C)​the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings of each block at its acquisition.
D)​the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings when the last block was acquired.

Quizplus · Accepted Answer

The conversion to simple equity method from the cost method, when additional shares are purchased, is based on the difference in subsidiary retained earnings at the beginning of the current fiscal year and the retained earnings of each block at its acquisition. This approach allows for an accurate reflection of the investment's value over time, taking into account the earnings retained in the subsidiary since each block was acquired.

Parent Has Purchased Additional Shares of Subsidiary Stock