Jumbo company acquires all of the stock of Mini company. According to US GAAP, w

Question

Jumbo company acquires all of the stock of Mini company. According to US GAAP, what is the basis to be used for recording the assets and liabilities of Mini within Jumbo’s consolidated financial statements??

A) The fair value of the consideration given up by Jumbo company.

B) The fair value of the shares obtained from the owners of Mini company.

C) The book value of the assets and liabilities of Mini company.

D) The fair value of the consideration given up by Jumbo company plus any direct consolidation costs incurred by Jumbo company.

Explanation / Answer

Solution: The fair value of the consideration given up by Jumbo company.

Explanation: While preparing the consolidated financial statements, the balance sheet of subsidiary’s accounts are readjusted to the current fair market value of the financial assets

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