One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is:
A) an undervaluation of the subsidiary's assets.
B) the existence of unrecorded goodwill.
C) an overvaluation of the subsidiary's liabilities.
D) the existence of unrecorded contingent liabilities.

Question

Quizplus · Accepted Answer

The existence of unrecorded contingent liabilities can lead to a parent company paying less than the book value for a subsidiary, as these liabilities may represent potential future obligations that are not reflected in the subsidiary's current financial statements.

One Reason a Parent Company May Pay an Amount Less