After a takeover, the parent's balance sheet shows a fair market value cost basis in the subsidiary for both book and tax purposes.

Question

Quizplus · Accepted Answer

For book purposes, the parent's balance sheet reflects the subsidiary at fair market value due to purchase accounting rules. However, for tax purposes, the basis of the assets acquired in a takeover is not automatically stepped up to fair market value unless a specific election is made or certain tax provisions are met, leading to a potential difference between book and tax bases.

After a Takeover, the Parent's Balance Sheet Shows a Fair