Final answer:
The statement"A financial holding company's board has determined that all the start-up costs and operating expenses for a new registered investment advisory company subsidiary will be allocated to its large trust company subsidiary for budgeting and profitability monitoring purposes. Evaluation of the trust company's earnings should include as assessment of this accounting practice is TRUE.
Step-by-step explanation:
When a financial holding company's board decides to allocate all the start-up costs and operating expenses for a new registered investment advisory company subsidiary to its large trust company subsidiary for budgeting and profitability monitoring purposes, the statement implies that evaluation of the trust company's earnings should include an assessment of this accounting practice. The answer to this query is TRUE. It's essential to consider such allocations in the assessment of the trust company's earnings because these costs can significantly affect the subsidiary's financial statements, and thus, its perceived profitability and performance.
In a broader context, when a small company reinvests its earnings for future growth, it may issue stocks or bonds. Issuing bonds requires regular interest payments that could impact cash flow, whereas issuing stock does not obligate the company to make payments, unless dividends are declared. Venture capitalists often offer an alternative to public markets by investing significantly and providing close oversight, potentially reducing information asymmetry issues with regard to management and strategic decisions.