A parent buys 35 percent of a subsidiary in one year and then buys an additional

Question

A parent buys 35 percent of a subsidiary in one year and then buys an additional 50 percent in the next year. In a step acquisition of this type, the original 35 percent acquisition should be

Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded

Adjusted to its equity method balance at the date of the second acquisition

Maintained at its initial value

Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid in capital

Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded

Adjusted to its equity method balance at the date of the second acquisition

Maintained at its initial value

Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid in capital

Explanation / Answer

(b) Ajusted to its equity method balance at the date of the second acquisition.

Note:- In step by step acquisition, adjust the Net assets (equity) of the holding company with the fair value of date control at each stage of acquisition. Comparison with the cost to fair value of total assets and total liability

total assets - total liability = equity.

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