One Company Is Considering Entering into a Business Combination with Another

question 24

Multiple Choice

One company is considering entering into a business combination with another. The potential acquirer wishes to acquire the subsidiary's assets and liabilities but wishes to prepare Consolidated Financial Statements using the Fair Market Values of its own assets and liabilities as well of those of its potential subsidiary. Can this be accomplished? (Assume that each of the methods is allowable)

• A) Yes, this is permissible under the Acquisition method.
• B) Yes, this is permissible under the Purchase Method under certain circumstances.
• C) Yes, this is permissible under the New Entity Method is used.
• D) No, this would not be possible under any circumstances.

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Definitions:

Credit Balance

This occurs when the total credits in an account exceed the total debits, often indicating money owed to a customer or client.

Adjusting Entry

An amended bookkeeping entry made to rectify or allocate transactions to the appropriate accounting period or ensure that revenues and expenses are recorded in the period they occur.

Doubtful Accounts

Accounts receivable that a company believes might not be collected due to credit risk.

Allowance Method

An accounting technique used to estimate and anticipate uncollectible accounts receivable and bad debts.