Question

Consolidated net income using the equity method for an acquisition combination is computed as follows:

A) parent company' net income from its own operations plus equity from subsidiary's income recorded by the parent
B) parent's net income
C) combined revenues less combined expenses less equity in subsidiary's incomes less amortization of fair-value allocations in excess of book value
D) parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent
E) all of the above

Answer 1

The consolidated net income using the equity method for an acquisition combination is computed as combined revenues less combined expenses less equity in subsidiary's incomes less amortization of fair-value allocations in excess of book value.

Step-by-step explanation:

The consolidated net income using the equity method for an acquisition combination is computed as option C) combined revenues less combined expenses less equity in subsidiary's incomes less amortization of fair-value allocations in excess of book value.

This method is used when a parent company acquires a majority stake in a subsidiary and wants to report the financial results of both companies as if they were a single entity. The parent company's net income from its own operations alone (option B) does not take into account the subsidiary's income. Option A is also incorrect because it only considers the parent company's net income and the equity from the subsidiary's income recorded by the parent.

Option D is incorrect because it incorrectly subtracts the expenses for the parent company's own operations from the parent's revenues, when those expenses should already be accounted for in the combined expenses calculation. Therefore, the correct answer is option C.