How Should the Acquisition Cost of a Business Combination Be

question 3

Multiple Choice

How should the acquisition cost of a Business Combination be allocated prior to preparing Consolidated Financial Statements?

• A) The acquisition cost should be allocated to the acquiree's book value.
• B) The acquisition cost should be allocated to the acquired company's identifiable assets and liabilities to bring them to their fair value.
• C) The acquisition cost should be reflected as an increase in the acquirer's Investment (in the subsidiary) account.
• D) The treatment of the acquisition cost depends largely on the type of consideration given by the acquirer.

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Definitions:

COGS

Stands for Cost of Goods Sold and refers to the direct costs attributable to the production of the goods sold by a company.

Payables Turnover Rate

A liquidity metric that measures how quickly a company pays off its suppliers by dividing total purchases by average accounts payable.

Accounts Payable Balance

The amount of money a company owes to its suppliers or creditors for goods and services purchased on credit.

Sales

The exchange of goods or services for money, representing the primary revenue source for most businesses.