P Company acquired 90% of the outstanding common stock of S Company which is a foreign company. The acquisition was accounted for using the purchase method. In preparing consolidated statements, the paid-in capital of S Company should be converted at the:

Question

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In the purchase method of accounting for an acquisition, the assets and liabilities of the acquired company are recorded at their fair values at the date of acquisition. Therefore, the paid-in capital of S Company should be converted at the exchange rate effective on the date of purchase of the stock of S Company by P Company. This ensures that the investment is accurately reflected in the parent company's financial statements at its cost at the time of acquisition.

P Company Acquired 90% of the Outstanding Common Stock of S