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Montgomery Company purchases 85% of Better Gravy Boat Corporation on December 31, 20X6, for $10 million...

Montgomery Company purchases 85% of Better Gravy Boat Corporation on December 31, 20X6, for $10 million and is preparing consolidated financial statements as of that date. Under the acquisition method of accounting, which of the following statements is correct with respect to Montgomery's consolidated financial statements? A. The noncontrolling interest in Better Gravy Boat's net assets is normally presented between the liabilities section and stockholders' equity section of Montgomery's balance sheet under all circumstances. B. The noncontrolling interest in Better Gravy Boat's net assets is normally initially valued at the fair value of Better Gravy's stockholders' equity under the entity theory. C. Any acquisition costs related to the noncontrolling interest portion of net assets are capitalized. D. Montgomery Company's consolidated balance sheet will reflect 85% of the fair value of the net assets acquired from Better Gravy Boat Corporation.

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Answer #1

Solution: The noncontrolling interest in Better Gravy Boat's net assets is normally initially valued at the fair value of Better Gravy's stockholders' equity under the entity theory

Explanation: In any acquisition the subsidiary’s net assets fair values need to be determined. The entity theory requires the non-controlling interest mut be recorded at its fair value percentage share of the net assets of subsidiary (including goodwill) at the date that the parent acquired its controlling interest

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