One Company Acquires Another Company in a Combination Accounted for Under

question 34

Multiple Choice

One company acquires another company in a combination accounted for under the acquisition method. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?

• A) It is the only method allowed by the SEC.
• B) It is relatively easy to apply.
• C) It is the only internal reporting method allowed by generally accepted accounting principles.
• D) Operating results on the parent's financial records reflect consolidated totals.
• E) When the initial value method is used, no worksheet entries are required in the consolidation process.

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Definitions:

Direct Materials Price Variance

A measure used in management accounting to assess the difference between the actual cost of materials used in production and the expected (standard) cost.

Direct Materials Quantity Variance

A measure of the difference between the actual quantity of materials used in production and the expected quantity, based on standards.

Total Direct Materials Cost Variance

The difference between the actual costs of direct materials used in production and the expected (or standard) costs.

Direct Materials Price

The cost of raw materials and components required for the manufacture of a product.