Google does use domain authority to rank sites, or at least they use the Panda update to demote pages on a site-wide basis. From Google's original announcement in 2011:
This update is designed to reduce rankings for low-quality sites—sites
which are low-value add for users, copy content from other websites or
sites that are just not very useful. At the same time, it will provide
better rankings for high-quality sites—sites with original content and
information such as research, in-depth reports, thoughtful analysis
and so on.
However, it is unclear how that affects subdomains. It is generally believed that subdomains do not benefit from the domain's overall status - otherwise every tumblr, wordpress, and blogspot would benefit from the primary domain's high authority. (Or, conversely, all the low-quality wordpress blogs would kill the main site's rankings due to Panda) Additionally, there is some evidence that websites have been able to escape Panda site-wide demotions by moving content to subdomains. Yet at the same time, a Google employee has recently implied that subdomains and subdirectories are treated the same for SEO:
(Q) The next big question is should I use sub domains instead of sub directorys for the 27 different eu countries we will be targeting. I hear sub domains are better for SEO purposes?
(A) We generally treat subdomains the same as subdirectories in that regard, both can use geotargeting. Sometimes one or the other is easier with your CMS or hosting, so I'd make that decision based on whatever works best for you :)
Overall I think the general evidence suggests that subdomains are treated independently, or at least mostly independently, of their overall domains, but you can also find statements and evidence that hint at a connection as well. Ultimately, we just don't know.