A parent company acquired 100% of the outstanding common stock of another corporation.The parent is going to use push-down accounting.The fair market value of each of the acquired corporation's assets is lower than its respective book value.The fair market value of each of the acquired corporation's liabilities is higher than its respective book value.The acquired corporation has a deficit in the Retained Earnings account.Which one of the following statements is correct?

Question

Quizplus · Accepted Answer

Push-down accounting requires the parent company to revalue the assets and liabilities of the acquired subsidiary to their fair market values at the acquisition date. In this case, the fair market value of each of the acquired corporation's assets is lower than its respective book value, and the fair market value of each of the acquired corporation's liabilities is higher than its respective book value. This means that the push-down adjustment will result in a lower net asset value, which will then decrease the push-down capital account. Therefore, the push-down capital account will have a debit balance after this transaction is posted as a result of the negative adjustment. Furthermore, since the acquired corporation has a deficit in the Retained Earnings account, it will also have a deficit balance in the subsidiary Retained Earnings account.

A Parent Company Acquired 100% of the Outstanding Common Stock