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For Each of the Following Situations, Select the Best Answer

Question 42

Matching

For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date:

Premises:

Responses:

Method(s) available to the parent for internal record-keeping.

Initial value method.

Easiest internal record-keeping method to apply.

Partial equity method.

Income of the subsidiary is recorded by the parent when earned.

Equity method

Designed to create a parallel between the parent’s investment accounts and changes in the underlying equity of the acquired company.

Initial value method and partial equity method but not equity method.

For years subsequent to acquisition, requires the *C entry.

Partial equity method and equity method but not initial value method.

Uses the cash basis for income recognition.

Initial value method, partial equity method, and equity method.

Investment account remains at initially recorded amount.

Dividends received by the parent from the subsidiary reduce the parent’s investment account.

Often referred to in accounting as a single-line consolidation.

Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

Premises:

Method(s) available to the parent for internal record-keeping.

Easiest internal record-keeping method to apply.

Income of the subsidiary is recorded by the parent when earned.

Designed to create a parallel between the parent’s investment accounts and changes in the underlying equity of the acquired company.

For years subsequent to acquisition, requires the *C entry.

Uses the cash basis for income recognition.

Investment account remains at initially recorded amount.

Dividends received by the parent from the subsidiary reduce the parent’s investment account.

Often referred to in accounting as a single-line consolidation.

Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

Responses:

Initial value method.

Partial equity method.

Equity method

Initial value method and partial equity method but not equity method.

Partial equity method and equity method but not initial value method.

Initial value method, partial equity method, and equity method.

Correct Answer:

Premises:

Responses:

Method(s) available to the parent for internal record-keeping.

Easiest internal record-keeping method to apply.

Income of the subsidiary is recorded by the parent when earned.

Designed to create a parallel between the parent’s investment accounts and changes in the underlying equity of the acquired company.

For years subsequent to acquisition, requires the *C entry.

Uses the cash basis for income recognition.

Investment account remains at initially recorded amount.

Dividends received by the parent from the subsidiary reduce the parent’s investment account.

Often referred to in accounting as a single-line consolidation.

Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.