In relation to pre-acquisition of a subsidiary entity, which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date?
I Transfers from post-acquisition retained earnings
II Bonus dividends paid from pre-acquisition equity
III Transfers from pre-acquisition retained earnings
IV Impairment of goodwill
A) I, II, III and IV
B) I, III and IV only
C) II and III only
D) III and IV only.

Question

In relation to pre-acquisition of a subsidiary entity, which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date? 
I Transfers from post-acquisition retained earnings
II Bonus dividends paid from pre-acquisition equity
III Transfers from pre-acquisition retained earnings
IV Impairment of goodwill
A) I, II, III and IV
B) I, III and IV only
C) II and III only
D) III and IV only.

Quizplus · Accepted Answer

II and III only. Bonus dividends paid from pre-acquisition equity and transfers from pre-acquisition retained earnings can cause a change in the pre-acquisition entry subsequent to the acquisition date. These events adjust the initial understanding of the acquired entity's equity at the acquisition date. Transfers from post-acquisition retained earnings and impairment of goodwill, however, affect the financials post-acquisition and do not retroactively alter the pre-acquisition entries.

In Relation to Pre-Acquisition of a Subsidiary Entity, Which of the Following