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If the value obtained from the DDM is higher than the current trading price of shares, then the stock is undervalued.

The dividend discount model is based on the idea that the intrinsic value of a stock can be estimated by the expected value of the cash flows it will generate in the future.

What journal entries does Company A make to record its proportionate share of Company B's earnings and the cash dividend?

Whether you apply the DRD to deferred taxes on undistributed earnings is a judgment call.

Company B is considered an of Company A in such circumstances, from Company A's perspective, but could be a freestanding, publicly traded corporation.

A company is generally considered to have significant influence, but not control, when it owns 20% – 50% of the voting interest in the unconsolidated subsidiary.

The company does not actually record the subsidiary's assets and liabilities on its balance sheet.

Rather, the Company A is entitled to a portion of Company B's earnings in proportion to Company A's economic ownership of Company B's stock.

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