Fun with Florals Corporation acquired all the voting common stock shares of Crafts-to-Go Corporation under the acquisition method.Crafts-to-Go remains a separate corporation.Which of the following statements about the financial statements is true?
A)The assets and liabilities of Crafts-to-Go Corporation would be not revalued and disclosed at fair value on the date of acquisition.
B)Fun with Florals will use the equity method of accounting for this investment.
C)Fun with Florals will prepare consolidated financial statements.
D)Fun with Florals will use the fair value method of accounting for this investment.

Question

Quizplus · Accepted Answer

Since Fun with Florals Corporation acquired all the voting common stock shares of Crafts-to-Go Corporation under the acquisition method, it will prepare consolidated financial statements to reflect the financial results of both companies. Option A is incorrect because the assets and liabilities of Crafts-to-Go would be revalued and disclosed at fair value on the date of acquisition. Option B is incorrect because the equity method is used when a company has significant influence over but not control of another company, which is not the case in this scenario. Option D is incorrect because the fair value method is used when a company has a portfolio of investments that are actively bought and sold, which is not the case in this scenario.

Fun with Florals Corporation Acquired All the Voting Common Stock