The acquisition method of accounting for a business combination is consistent with
A) Entity theory.
B) Proprietary theory.
C) Parent company theory.
D) Residual interest theory.

Question

Quizplus · Accepted Answer

The acquisition method of accounting is consistent with the entity theory, which views the subsidiary as a separate legal entity from the parent company. This approach recognizes that the subsidiary has its own assets, liabilities, and equity, which must be recorded separately from those of the parent company. By contrast, the proprietary theory views the subsidiary as a mere extension of the parent company, while the parent company theory treats the subsidiary as a department or division of the parent company. The residual interest theory focuses on the claim of the parent company's shareholders to the residual or excess earnings of the subsidiary after all other claims have been satisfied.

The Acquisition Method of Accounting for a Business Combination Is