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:

Economics

The study of how people use their scarce resources to satisfy their unlimited wants

Physical Capital

Manufactured items used to produce goods and services; includes new plants and new equipment.

Petty Cash

A small amount of cash on hand that is used for paying minor or incidental expenses in a business.

Free Goods

Items or services available in abundance without direct cost, such as air or sunlight, not requiring scarce resources for their production.