Company A acquired 100 percent of the outstanding common stock of Company B.At the date of acquisition,no goodwill was involved and the book value of the assets and liabilities of Company B equal their fair values.Immediately after the acquisition,an elimination entry is prepared in order to prepare consolidated financial statements.What accounts are affected by the elimination entry?
A)Investment in Company B only
B)Stockholders' Equity of Company B only
C)Fixed Assets of Company B only
D)Investment in Company B and Stockholders' Equity of Company B

Question

Quizplus · Accepted Answer

The elimination entry is prepared in order to remove the effects of the intercompany transactions and any remaining investment account balances. In this acquisition scenario, the investment in Company B account and the stockholders' equity of Company B account are both affected by the elimination entry. This is done to avoid double counting of the equity of Company B and the value of the investment in Company B on the consolidated financial statements. The fixed assets of Company B are not affected by the elimination entry because they have already been recorded at fair value, which is the same as their book value.

Company a Acquired 100 Percent of the Outstanding Common Stock