When a Parent Uses the Acquisition Method for Business Combinations

question 67

Multiple Choice

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?

• A) If majority control is still maintained, consolidated financial statements are still required.
• B) If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required.
• C) If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required.
• D) If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required.
• E) A gain or loss calculation must be prepared if control is lost.

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Definitions:

Rationalization

The process of logically justifying individual behavior or decisions that might otherwise appear irrational or unjustifiable, often by providing plausible but not necessarily true reasons.

False Invoices

Documents issued to request payment for goods or services not delivered or rendered, used to defraud or embezzle.

Ethics

The study of moral obligations, or separating right from wrong.

Rational Leader

A leader who makes decisions based on logic, analysis, and objectivity.