When preparing the consolidated balance sheet on the date of acquisition, the parent's investment (in subsidiary company) is:
A) revalued to fair market value.
B) replaced with 100% of the assets and liabilities of the subsidiary at fair market value.
C) replaced with 100% of the assets and liabilities of the subsidiary at book value.
D)replaced with the parent's pro rata share of the assets and liabilities of the subsidiary at fair market value.

Question

Quizplus · Accepted Answer

When preparing the consolidated balance sheet on the date of acquisition, the parent's investment (in subsidiary company) is replaced with 100% of the assets and liabilities of the subsidiary at fair market value. This is because the acquisition is treated as a purchase, and the parent acquires control over the subsidiary, which means the parent now owns 100% of the subsidiary's assets and liabilities at fair market value.

When Preparing the Consolidated Balance Sheet on the Date of Acquisition