When a parent company pays less than book value for an investment in a subsidiary,the excess of book value over the cost of the investment should be used to lower the carrying value of the subsidiary's long-term assets (other than long-term marketable securities)in preparing the consolidated financial statements.

Question

Quizplus · Accepted Answer

When a parent company pays less than book value for an investment in a subsidiary, the excess of book value over the cost of the investment is referred to as a bargain purchase. In this case, the carrying value (book value) of the subsidiary's long-term assets (other than long-term marketable securities) should be reduced to reflect the bargain purchase in the consolidated financial statements. Therefore, the statement is true.

When a Parent Company Pays Less Than Book Value for an Investment