A parent company acquires a subsidiary on January 1, 2018. The subsidiary's equipment (five-year remaining life, straight-line) is undervalued by $30 million at the date of acquisition. On the consolidation working paper prepared at December 31, 2021 (four years later), by how much does eliminating entry (R) increase the equipment account?

Question

Quizplus · Accepted Answer

Eliminating entry (R) recognizes the revaluation to fair value as of the beginning of the fourth year. $30 - [($30/5) x 3] = $12 million increase to the equipment account.

A Parent Company Acquires a Subsidiary on January 1, 2018