Question

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? A) Income from subsidiary is not recognized until there is an entire year of consolidated operations. B) Income from subsidiary is recognized from date of acquisition to year-end. C) Excess cost over acquisition value is recognized at the beginning of the fiscal year. D) No goodwill can be recognized. E) Income from subsidiary is recognized for the entire year.

Answer 1

Answer:

B) Income from subsidiary is recognized from date of acquisition to year-end.

Explanation:

When an individual or a company purchase another business, they are responsible for all the gains and losses generated by that business starting from the exact moment that the sales transaction has been completed. E.g. if I buy a business on January 20, at 10 AM, I am completely responsible for the things that happen in the company after 10 AM.