When a company acquires a subsidiary, and that subsidiary continues in legal existence and prepares separate financial statements, the parent will need to adopt some internal accounting method to account for its transactions with the subsidiary. The methods we studied include the full equity method, the partial equity method, and the initial value method. Which of the following statements about the internal accounting method selected by the parent is true?
Group of answer choices
The consolidated Net Income of the two companies will be highest if the parent selects the full equity method.
The consolidated Net Income of the two companies will be highest if the parent selects the partial equity method.
The parent’s internal accounting method will have no impact on the consolidated results of the two companies.
The consolidated Net Income of the parent will be highest if the parent selects the Initial Value method.
2. When a company acquires a subsidiary, and that subsidiary continues in legal existence and prepares separate financial statements, the parent will need to adopt some internal accounting method to account for its transactions with the subsidiary. The methods we studied include the full equity method, the partial equity method, and the initial value method. Which of the following is an advantage of the parent selecting the full equity method for its internal accounting purposes?
Group of answer choices
Full consolidated financial statements are not required if the Parent’s financial statements are prepared using the Equity Method.
It is a relatively easy method to apply
Net Income and Retained Earnings reported on the parent’s separate financial statements will reflect the same consolidated totals.
GAAP now requires this method for internal accounting purposes
