What change occurs in the balance sheet after acquiring a subsidiary at fair value?

When a company acquires a subsidiary at fair value, it recognizes the assets, liabilities, and any non-controlling interests of the subsidiary on its balance sheet. This transaction results in a significant increase in total assets because the acquirer records the fair value of the acquired net assets, which includes tangible and intangible assets such as inventory, machinery, patents, and customer relationships.

The accounting for this type of acquisition follows the acquisition method, where the fair value of the acquired assets and assumed liabilities is consolidated into the acquirer's financial statements. As a result, there is a direct increase in total assets reflecting the value of these newly acquired assets. This process effectively expands the balance sheet, enhancing the resources available to the acquirer and often leading to expanded operational capacity and market presence.

The other options indicate various implications that do not occur immediately upon the acquisition of a subsidiary at fair value. For instance, total equity should generally increase as the value of the acquired assets is typically higher than the liabilities assumed, and an increase in total liabilities only occurs if the liabilities of the subsidiary exceed the value of the assets acquired. Therefore, the net effect is primarily observed as an increase in total assets, justifying the selection of the correct answer.