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For Each of the Following Situations, Select the Best Answer

Question 124

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For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date:

Premises:

Responses:

Method(s) available to the parent for internal record-keeping.

Initial value method, partial equity method, and equity method.

Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

Initial value method and partial equity method but not equity method.

For years subsequent to acquisition, requires the *C entry.

Equity method.

Easiest internal record-keeping method to apply.

Partial equity method.

Often referred to in accounting as a single-line consolidation.

Partial equity method and equity method but not initial value method.

Investment account remains at initially recorded amount.

Initial value method.

Dividends received by the parent from the subsidiary reduce the parent's investment account.

Uses the cash basis for income recognition.

Income of the subsidiary is recorded by the parent when earned.

Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company.

Premises:

Method(s) available to the parent for internal record-keeping.

Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

For years subsequent to acquisition, requires the *C entry.

Easiest internal record-keeping method to apply.

Often referred to in accounting as a single-line consolidation.

Investment account remains at initially recorded amount.

Dividends received by the parent from the subsidiary reduce the parent's investment account.

Uses the cash basis for income recognition.

Income of the subsidiary is recorded by the parent when earned.

Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company.

Responses:

Initial value method, partial equity method, and equity method.

Initial value method and partial equity method but not equity method.

Equity method.

Partial equity method.

Partial equity method and equity method but not initial value method.

Initial value method.

Correct Answer:

Premises:

Responses:

Method(s) available to the parent for internal record-keeping.

Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

For years subsequent to acquisition, requires the *C entry.

Easiest internal record-keeping method to apply.

Often referred to in accounting as a single-line consolidation.

Investment account remains at initially recorded amount.

Dividends received by the parent from the subsidiary reduce the parent's investment account.

Uses the cash basis for income recognition.

Income of the subsidiary is recorded by the parent when earned.

Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company.