Question

Which of the following is true about consolidated financial statements prepared on the date of acquisition of a subsidiary?

a. The subsidiary's revenues and expenses from the entire year are included.
b. The subsidiary's assets and liabilities are reported at their historical cost.
c. If a parent company owns less than 100% of a subsidiary, it can only consolidate the percentage of assets and liabilities that it owns.
d. Goodwill is recorded if the parent company paid more than the fair value of net assets of the subsidiary.
e. The parent company reports an investment in subsidiary separately on its balance sheet

Answer 1

Consolidated financial statements on the date of acquisition of a subsidiary report the subsidiary's assets and liabilities at their historical cost.

Step-by-step explanation:

When preparing consolidated financial statements on the date of acquisition of a subsidiary, the correct statement is option b.

Option a is incorrect because only the subsidiary's revenues and expenses from the date of acquisition to the end of the reporting period are included.

Option c is incorrect because if a parent company owns less than 100% of a subsidiary, it must still consolidate 100% of the subsidiary's assets and liabilities.

Option d is incorrect because goodwill is only recorded if the parent company has paid more than the fair value of the subsidiary as a whole, not just the net assets.

Option e is incorrect because the parent company does not report an investment in the subsidiary separately on its balance sheet. Instead, the subsidiary's assets and liabilities are consolidated into the parent company's balance sheet.