Accounting for Acquisition: Consolidation Post-Acquisition

Medium Intercorporate Investments Acquisition Method

ABC Corporation has acquired 80% of XYZ Limited for $1,000,000. At the time of acquisition, XYZ Limited had total assets of $1,200,000 and total liabilities of $700,000. The fair value of the identifiable net assets acquired is equal to their carrying amount.

Based on the acquisition method, how should ABC Corporation account for the acquisition of XYZ Limited when consolidating financial statements?

ABC Corporation should consolidate 80% of XYZ Limited's net income in its financial statements.

ABC Corporation should recognize Goodwill equal to the purchase price minus the fair value of the identifiable net assets.

ABC Corporation should recognize only the assets acquired and liabilities assumed at their carrying amounts, without recognizing any Goodwill.

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