A subsidiary owns shares of its parent. A mutual affiliation exists and:

Multiple Choice

this investment is not considered to be intercompany in nature; therefore, it does not have to be eliminated for consolidation purposes.

the amount of the investment does not have to be eliminated if the income allocated to the subsidiary is calculated using the treasury stock approach.

the treasury stock approach reclassifies the cost of the shares as treasury stock with an equity accrual being recorded.

the investment is intercompany in nature and therefore, it must be eliminated for consolidation purposes. The amount to be eliminated and the income allocated to the subsidiary can be calculated using the treasury stock approach.

the amount of the investment eliminated and the income allocated to the subsidiary can be calculated by using the conventional approach, and management may then determine whether or not to eliminate the upstream investment.