CQ2.1 Parent-subsidiary relationship Is there a parent-subsidiary relationship in each of the situations below? If the situation is ambiguous, identify the factors that will determine if a parent-subsidiary relationship exists. (a) Company A signs an agreement with Company B to set up Company C in China. Both Company A and Company B will have 50% voting rights in Company C. (b) Company A buys 100% of the net assets of Company B. The purchase price includes goodwill. Company B is subsequently dissolved. (c) Company A arranges to have its shares acquired by Company B who issues new shares to the owners of Company A. The owners of Company A are also the executive directors of Company A. Company B gives three of five seats on the board of directors to the executive directors of Company A. (d) Company B owes $20 million to Company A. As a result of financial difficulties, Company A agrees to accept shares issued by Company B as settlement of the liabilities. After the share issue, Company A owns 60% of Company B