Question

Gigantic Company buys 100 percent of the outstanding company stock of Small Company. Gigantic paid a considerable amount for this new company which indicated that Small had a number of intangible assets of value that it had not previously recorded. Gigantic is attempting to determine which of these intangible assets must be identified and recorded in consolidated financial statements. Small has expended $4 million on research and development projects in recent years. Many of those have proven worthless but a few are now considered to be quite valuable. Although none of these research and development projects have yet reached the stage of technological feasibility, they are still considered to be worth $7 million at the time of the acquisition. What reporting is made of these in-process research and development projects?

A) $4 million is recorded on the consolidated statements as an expense.

B) $4 million is recorded on the consolidated statements as an asset.

C) $7 million is recorded on the consolidated statements as an expense.

D) $7 million is recorded on the consolidated statements as an asset.

Answer 1

As per the standards of consolidation on the acquisition of a company the acquired compajy becomes a subsidary company all the assets and liabilities are added with holding company financials to make consolidated financial statements ime. Line by line additiin the intangible assets of subsidary company are taken at fair value at the time of preparation of financial statements

In the given case $7million is recorded on the consolidated financial statements as an asset