One Company Acquires Another Company in a Combination Accounted for Under

question 103

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 method is used, no worksheet entries are required in the consolidation process.

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Definitions:

Borrower

An individual or entity that takes funds from another under the agreement that the funds will be repaid, often with interest, over time.

Recording

The act of capturing data, events or performances in a permanent form for later playback or analysis.

Mortgage

A legal agreement by which a bank, credit union, or other lender lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt.

Mortgage Loans

A loan secured by the collateral of some specified real estate property which the borrower is obliged to pay back with a predetermined set of payments.