Asked by Margaret Galeener on Jun 23, 2024
Verified
Which of the following statements regarding pre-acquisition entries prepared after acquisition date is incorrect?
A) They are adjusted for transfers between post-acquisition equity accounts.
B) They include the pre-acquisition entry prepared at acquisition date adjusted for the effects of all the transfers between pre-acquisition equity accounts and changes in the investment account up to the beginning of the current period.
C) They reverse the transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period.
D) They are adjusted for the changes in the investment account recognised by the parent in the subsidiary.
Pre-acquisition Entries
Accounting entries made to adjust the assets and liabilities of a company being acquired to their fair market values at the date of acquisition.
Acquisition Date
The specific date on which control of the assets of an acquired company is transferred to the buyer.
- Understand the role and preparation of pre-acquisition entries in consolidation accounting.
- Distinguish between pre-acquisition and post-acquisition equity accounts and their impacts on consolidation.
Verified Answer
MV
Manjari VemparalaJun 26, 2024
Final Answer :
A
Explanation :
Pre-acquisition entries prepared after the acquisition date are adjusted for transfers between pre-acquisition equity accounts and changes in the investment account up to the beginning of the current period. They also reverse any transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period. They are also adjusted for the changes in the investment account recognized by the parent in the subsidiary. Therefore, statement A is incorrect as it mentions "transfers between post-acquisition equity accounts" which is not relevant to pre-acquisition entries prepared after the acquisition date.
Learning Objectives
- Understand the role and preparation of pre-acquisition entries in consolidation accounting.
- Distinguish between pre-acquisition and post-acquisition equity accounts and their impacts on consolidation.
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