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12 December, 20:09

Zoom Shoes Inc. has 115,000 shares of stock outstanding. GAS Running Company owns 35,000 shares of Zoom Shoes Inc. Which of the following is true? a. GAS Running Company is the subsidiary company. b. Zoom Shoes Inc. is the parent company. c. GAS Running Company is required to use the equity method for this investment. d. GAS Running Company is required to combine the financial statements of Zoom Shoes Inc. and report as a single company.

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  1. 13 December, 00:02
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    c. GAS Running Company is required to use the equity method for this investment.

    Explanation:

    a. GAS Running Company is the subsidiary company.

    -> wrong, because in this case Gas Running Company own shares of Zoom Shoes Inc., not vice versa

    b. Zoom Shoes Inc. is the parent company.

    -> wrong, same explanation as above for (a)

    c. GAS Running Company is required to use the equity method for this investment.

    -> true

    Equity method in accounting is the process of treating investments in associate companies ... is used in accounting when a company holds approximately 20% to 50% of a company's stock and this is considered to have significant influence.

    The holding of Gas Running Company in Zoom Shoes Inc. is 30.4% (=35,000 shares / 115,000 shares of stock outstanding), is less 50% stakes. That requires Gas Running Company to use Equity method accounting to use the equity method for this investment.

    d. GAS Running Company is required to combine the financial statements of Zoom Shoes Inc. and report as a single company.

    -> wrong, same explanation as above for (c)
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Home » Business » Zoom Shoes Inc. has 115,000 shares of stock outstanding. GAS Running Company owns 35,000 shares of Zoom Shoes Inc. Which of the following is true? a. GAS Running Company is the subsidiary company. b. Zoom Shoes Inc. is the parent company. c.
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