Which of the following statements is true regarding the acquisition method of accounting for abusiness combination? a. Assets of the acquired company are recorded at book values. b. Assets of theacquired company are recorded at fair value, but only if the acquisition cost equals or exceeds fairvalue of the subsidiary's net assets. c. Assets of the acquired company are recorded at fair valuesregardless of the acquisition cost. d. Consulting costs related to the combination reduce additionalpaid-in capital.

The assets and liabilities of the acquired company are recognised at their fair values at the…

Answered: Which of the following statements is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Under PFRS 3, when is a gain recognized in consolidating financial information? a. In a combination created in the middle of the fiscal year b. In an acquisition when the value of all assets and liabilities cannot be determined. c. When any bargain purchased is created d. When the amount of a bargain purchase exceeds the value of the applicable liability held by the acquired company.
Investors sometimes transfer assets to investee’s shareholders other than cash and investor’s stock. How should theses transferred assets be accounted for the acquisition?
Will the decision about the transfer price affect consolidated net income? Which method would be easiest for the company's accountant to administer? As the company's accountant, what advice would you give to these officials?
The cost of intangible asset acquired in business combination is recognized by entity in its book at: a. Cost of acquisition date b. Either at cost or fair value at acquisition date c. Fair value at acquisition date d. Fair value at end of the reporting period
When a subsidiary sells inventory to a parent, the intra-entity profit is removed from the subsidiary’s net income for consolidation and reduces the income allocation to the noncontrolling interest. Is the profit permanently eliminated from the noncontrolling interest, or is it merely shifted from one period to the next? Explain.
In an accretion/dilution analysis of an acquisition, if the purchase price exceeds the book value of the target’s assets, discuss the key components of the balance sheet that will be adjusted on the pro forma financial statements.
In the cost method of acquisition income is recognized only when the subsidiary declares dividends Select one: True False
In an accretion/dilution analysis of an acquisition, if the purchase price exceeds the book value of the target’s assets, discuss the key components of the balance sheet that will be adjusted on the pro forma financials.
What is one of the primary objectives of accounting for business amalgamations? A) To recognize the fair value of the acquired assets and liabilities. B) To minimize tax liabilities for the acquiring company. C) To maintain separate accounting records for the acquiring and acquired entities. D) To increase shareholder dividends in the acquiring company.
A subsidiary, acquired for cash in a business combination, owned equipment with a market value in excess of book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would treat this excess as Goodwill. Plant and equipment. Retained earnings.
Tanner Company, a subsidiary acquired for cash, owned Furniture with a fair value higher than the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference in: Select one: a. Furniture b. retained earnings c. differential d. goodwill
A bargain purchase arises when the price paid to acquire a controlling interest in another company is less than the acquirer’s share of the fair value of net assets of the company being acquired. At the end of your preliminary analysis, you believe that a business combination results in a bargain purchase. What is your next step? A. Recognize an immediate gain in the consolidated statement of profit and loss without further analysis. B. Recognize a liability in the consolidated balance sheet. C. Contact the acquiree to confirm its intention. D. Reassess each step of your analysis to confirm your preliminary findings.

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