North Bank has lent Sophie Limited $600 000. Part of the loan contract prevents Sophie from borrowing money in the future from other banks without the permission of North. As a result of this relationship:

A) North Bank is regarded as a parent entity of Sophie Limited.
B) Sophie Limited is regarded as a subsidiary of North Bank.
C) a parent-subsidiary relationship does not exist between these two parties.
D) a parent-subsidiary relationship exists between these two parties as North Bank is able to direct the relevant activities of Sophie Limited.

Question

Jesse Smith Jr · Accepted Answer

Final Answer : C, Explanation :  The loan contract between North Bank and Sophie Limited does not establish a parent-subsidiary relationship between the two parties. Although Sophie Limited has agreed to certain restrictions in relation to borrowing funds from other banks, this does not give North Bank the power to direct the activities of Sophie Limited or exercise control over its decision making. Therefore, the relationship between the two parties is that of lender and borrower, rather than parent and subsidiary.

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