At the date of acquisition by a parent company,the fair value of a subsidiary's fixed assets was larger than their book value.When preparing consolidated financial statements,the fixed assets of the subsidiary are ________ and depreciation expense is ________.
A) decreased to fair value; decreased
B) increased to fair value; increased
C) not adjusted; not adjusted
D) increased to fair value; not adjusted

Question

Quizplus · Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), when a company acquires a subsidiary, the fixed assets of the subsidiary should be revalued to their fair value as of the date of acquisition. Therefore, the fixed assets of the subsidiary will be increased to their fair value on the consolidated financial statements. Moreover, since the fixed assets' remaining useful life is also adjusted to the date of acquisition, the depreciation expense is also increased to reflect the new fair value. Thus, the correct answer is B- increased to fair value; increased.

At the Date of Acquisition by a Parent Company,the Fair