Question

True/False Questions

1. Carrying amounts of the combinee's identifiable net assets are disregarded in accounting for a business combination.
2. In a business combination that establishes a parent company-subsidiary affiliation, the subsidiary prepares journal entries on the date of the combination to increase the carrying amounts of its net assets to current fair values.
3. Only the balance sheet is consolidated on the date of a business combination of a parent company and subsidiary.
4. All out-of-pocket costs of a business combination reduce additional paid-in capital of the combinor.
5. A subsidiary's paid-in capital ledger accounts always are eliminated in the preparation of a consolidated balance sheet for the parent company and the subsidiary.
6. A controlling financial interest traditionally has been defined as the investor corporation's ownership of more than 50% of the investee corporation's outstanding common stock.

Answer 1

SOLUTION:

1) Carrying amounts of the combinee's identifiable net assets are disregarded in accounting for a business combination.

The answer is TRUE.

2) In a business combination that establishes a parent company-subsidiary affiliation, the subsidiary prepares journal entries on the date of the combination to increase the carrying amounts of its net assets to current fair values.

The answer is FALSE.

3)Only the balance sheet is consolidated on the date of a business combination of a parent company and subsidiary.

The answer is TRUE.

4) All out-of-pocket costs of a business combination reduce additional paid-in capital of the combinor.

The answer is FALSE.

5) A subsidiary's paid-in capital ledger accounts always are eliminated in the preparation of a consolidated balance sheet for the parent company and the subsidiary.

The answer is TRUE.

6) A controlling financial interest traditionally has been defined as the investor corporation's ownership of more than 50% of the investee corporation's outstanding common stock.

The answer is TRUE.