Under the direct method, what values should be entered for the assets, liabilities, and shareholders' equity to start the consolidation process?
A)Carrying values for both the parent and the subsidiary companies
B)Carrying values for the parent company and fair values for the subsidiary company
C)Fair values for the parent company and carrying values for the subsidiary company
D)Fair values for both the parent and the subsidiary companies

Question

Quizplus · Accepted Answer

To start the consolidation process under the direct method, carrying values for both the parent and the subsidiary companies should be entered for assets, liabilities, and shareholders' equity. This is because the direct method involves adding up the individual line items of the balance sheets of the parent and subsidiary companies, and then eliminating any intercompany transactions and balances. Using fair values could introduce additional complexities, as fair values may not be readily available or may be subject to significant estimation uncertainties.

Under the Direct Method, What Values Should Be Entered for the Assets