Rainbow Company acquired 100 percent of the outstanding common stock of Ribbon Company.At the date of acquisition,no goodwill was involved and the book value of the assets and liabilities of Ribbon Company equal their fair values.Immediately after the acquisition,an elimination entry is prepared in order to prepare consolidated financial statements.Which of the following accounts are affected by the elimination entry?
A) Investment in Ribbon Company and Investment Revenue
B) Stockholders' Equity of Ribbon Company and Investment Revenue
C) Fixed Assets of Ribbon Company and Investment Revenue
D) Investment in Ribbon Company and Stockholders' Equity of Ribbon Company

Question

Quizplus · Accepted Answer

The elimination entry eliminates the Investment account in Ribbon Company and transfers it to the Stockholders' Equity account in Ribbon Company. Therefore, the affected accounts are Investment in Ribbon Company and Stockholders' Equity of Ribbon Company. Investment Revenue is not affected by the elimination entry. Fixed Assets are not specifically mentioned in the question and therefore are not relevant to the elimination entry.

Rainbow Company Acquired 100 Percent of the Outstanding Common Stock