Under the Parent Company Theory, which of the following statements pertaining to consolidated financial statements is TRUE?
A) The consolidated balance sheet is prepared by adding the carrying amounts of both the Parent and its subsidiary.
B) The consolidated balance sheet is prepared by adding the carrying amounts of both the Parent and its subsidiary as well as the Parent's share of any acquisition differentials.
C) The consolidated balance sheet is prepared by adding the fair market values of both the Parent and its subsidiary as well as the parent's share of any acquisition differentials.
D)The consolidated balance sheet is prepared by adding together the fair market values of both the parent and its subsidiary.

Question

Quizplus · Accepted Answer

Under the Parent Company Theory, consolidated financial statements are prepared by adding the carrying amounts of both the Parent and its subsidiary as well as the Parent's share of any acquisition differentials. This is because the parent company is considered to have control over the subsidiary and therefore, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their carrying amounts. Additionally, any differences between the fair value of the consideration given by the parent company and the net assets acquired of the subsidiary are recognized as acquisition differentials and included in the consolidated balance sheet.

Under the Parent Company Theory, Which of the Following Statements