Asked by Melissa Jordan on Jun 17, 2024

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In an inflationary economy, under which consolidation method would total assets in the consolidated balance sheet at the acquisition date be greatest?

A) Proportionate consolidation method
B) Parent company method
C) Fair value enterprise method
D) Identifiable net assets method

Fair Value Enterprise Method

A valuation technique that estimates the price at which an entire business would change hands, reflecting the present value of future earnings.

Total Assets

represent the summation of everything a company owns, both current and non-current, that can be used for paying debts, investments, or other operations.

  • Explain the effects of fair value modifications during mergers and acquisitions.
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EA
Elisa AfiouniJun 20, 2024
Final Answer :
C
Explanation :
In an inflationary economy, the Fair Value Enterprise Method would result in the greatest total assets in the consolidated balance sheet at the acquisition date. This is because the fair value method values assets and liabilities at their current market value, which would be higher in an inflationary economy than in a stable or deflationary economy. In contrast, the Proportionate Consolidation Method and Parent Company Method do not take into account changes in fair value and may result in lower asset values. The Identifiable Net Assets Method values assets based on their book value, which may not reflect their current market value in an inflationary economy.