When Consolidating a Subsidiary That Was Acquired on a Date

question 75

Multiple Choice

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true in the presentation of consolidated financial statements?

• A) Preacquisition earnings are deducted from consolidated revenues and expenses.
• B) Preacquisition earnings are added to consolidated revenues and expenses.
• C) Preacquisition earnings are deducted from the beginning consolidated stockholders' equity.
• D) Preacquisition earnings are added to the beginning consolidated stockholders' equity.
• E) Preacquisition earnings are ignored in the consolidated income statement.

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Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, highlighting the net profit or loss.

Perpetual Inventory System

An immediate inventory recording technique utilizing computerized point-of-sale systems and enterprise asset management software to document sales or purchases.

Freight In

The cost of transportation or shipping of raw materials or goods into a production facility or warehouse.

Periodic Method

An accounting system where inventory values and cost of goods sold are determined at the end of an accounting period.