Which of the following statements is false regarding a subsidiary's investment in the parent company's stock? Multiple Choice In consolidation, the parent's retained earnings will not be reduced by the dividends it paid to the subsidiary. This corporate combination is known as mutual ownership. Shares of the parent held by a subsidiary are treated as outstanding shares in consolidated financial statements. For consolidation, both the parent and subsidiary must defer gross profit on remaining inventory from intra-entity transfers. The treasury stock approach focuses on the parent's control over its subsidiary.