When a Parent Uses the Initial Value Method Throughout the Year

question 85

Multiple Choice

When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

• A) Parent company net income equals consolidated net income.
• B) Parent company retained earnings equals consolidated retained earnings.
• C) Parent company total assets equals consolidated total assets.
• D) Parent company dividends equal consolidated dividends.
• E) Goodwill is recorded on the parent's books.

---

Definitions:

Correct Balances

Accurate financial figures in accounting records that match the real-world values of assets, liabilities, and equity.

Accounting Period

A specific time frame for which financial records are tracked and reported, typically a year or quarter.

Accrual Basis

An accounting method where revenue is recorded when earned and expenses are recorded when incurred, regardless of when cash transactions occur.

Prepaid Expenses

Future expenses that have been paid in advance and are recorded as assets until they are actually incurred.