When a parent uses the partial equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet?
A) Parent company net income will equal controlling interest in consolidated net income when initial value, book value, and fair value of the investment are equal.
B) Parent company net income will exceed controlling interest in consolidated net income when fair value of depreciable assets acquired exceeds book value of depreciable assets.
C) Parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired.
D) Goodwill will be recognized if acquisition value exceeds fair value of net assets acquired.
E) Subsidiary net assets are valued at their book values before consolidating entries are made.

Question

Quizplus · Accepted Answer

When the fair value of net assets acquired exceeds the book value, the parent company's net income will initially be higher, not less, than the controlling interest in consolidated net income due to the amortization of the excess fair value over book value.

When a Parent Uses the Partial Equity Method Throughout the Year