A Parent Company Acquired 100% of the Outstanding Common Stock

question 6

Multiple Choice

A parent company acquired 100% of the outstanding common stock of another corporation.The parent is going to use push-down accounting.The fair market value of each of the acquired corporation's assets is lower than its respective book value.The fair market value of each of the acquired corporation's liabilities is higher than its respective book value.The acquired corporation has a deficit in the Retained Earnings account.Which one of the following statements is correct?

• A)The push-down capital account will have a credit balance after this transaction is posted.
• B)The push-down capital account will have a debit balance after this transaction is posted.
• C)The push-down capital account will have either a debit or a credit balance depending upon whether the asset adjustments exceed the liability adjustments,or vice versa.
• D)Subsidiary Retained Earnings will have a deficit balance after this transaction is posted.

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Definitions:

Impostor Rule

A legal principle that protects persons who, in good faith, pay or act upon the instructions of someone falsely purporting to represent another.

Order Paper

A document listing all the items of business scheduled to be considered by a parliament or other legislative body on a specific day.

Negotiated

The process through which parties come together to discuss and settle upon the terms of an agreement or contract.

Without Recourse

A term indicating that the seller of a financial instrument relinquishes the right to demand payment from the buyer in case of non-payment.