Under the parent company method, which of the following statements pertaining to consolidated financial statements is TRUE?

A) The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary.
B) The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary as well as the parent's share of any acquisition differentials.
C) The consolidated balance sheet is prepared by adding the fair market values of both the Parent and its subsidiary as well as the parent's share of any acquisition differentials.
D) The consolidated balance sheet is prepared by adding together the fair market values of both the parent and its subsidiary.

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Mariah Coilton · Accepted Answer

Final Answer : B, Explanation :  Under the parent company method, consolidated financial statements are prepared by adding the carrying amounts of both the parent and its subsidiary as well as the parent's share of any acquisition differentials. This is done to reflect the economic substance of the parent's control over the subsidiary, as the parent is able to govern the financial and operating policies of the subsidiary. Therefore, choice B is correct. Choices A, C, and D are incorrect because they do not fully reflect the economic substance of the parent's control and may not provide a true picture of the consolidated financial position.

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