One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?
A) It is the only method allowed by the SEC.
B) It is relatively easy to apply.
C) It is the only internal reporting method allowed by generally accepted accounting principles.
D) Operating results on the parent's financial records reflect consolidated totals.
E) When the equity method is used, no worksheet entries are required in the consolidation process.

Question

Quizplus · Accepted Answer

The acquiring company might have chosen to apply the equity method because it allows the operating results of the subsidiary to be reflected in the parent's financial records as consolidated totals. This can provide a clearer picture of the overall financial performance of the company.

One Company Acquires Another Company in a Combination Accounted for as an Acquisition