A parent buys $60\%$ of a subsidiary in one year and then purchases an additional $25\%$ in the next year. How is the second acquisition of $25\%$ treated?

Multiple Choice

All subsequent purchases are based on the fair values at the time of the first acquisition and any adjustments are recorded as a gain.

The acquisition method views the subsidiary as whole and can only be used if $100\%$ of the subsidiary has been acquired through step acquisitions.

The valuation basis for the subsidiary$$s net assets was established in the first acquisition when control was obtained. Any differences between transaction prices and the underlying subsidiary book values are adjustments to Additional Paid In Capital.

A gain or loss is recognized from the adjustment to the subsidiary$$s fair value on the second purchase.

All subsequent purchases are valued based on the fair values at the time purchase and allocations will be calculated for each purchase.