In a Transaction Accounted for Using the Acquisition Method Where

question 91

Multiple Choice

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?

• A) Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill.
• B) Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill.
• C) Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values. Any excess is allocated to goodwill.
• D) Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill.

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Definitions:

Monetary Damages

Financial compensation awarded to a person as restitution for loss or injury caused by the unlawful acts of another.

Legal Damages

Compensation, often financial, awarded by a court to a person who has suffered loss or injury due to the unlawful act or negligence of another.

Novation

In a contract, the substitution of a third party for one of the original parties; the duties remain the same under the contract, but one original party is discharged and the third party takes that original party’s place.

Substituted Contract

An agreement between the contracting parties to replace an existing contract with a new one, possibly altering terms or obligations.