David Sells His Car, Which He Considers Worthless, to Cameron

question 104

Multiple Choice

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

• A) David and Cameron must have different preferences for the car.
• B) This trade did not create value because Cameron is buying a car that David considers worthless.
• C) Cameron is the only one made better off by the trade.
• D) David is made better off by the trade, but Cameron is made worse off.

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Definitions:

Goodwill Recognition

The accounting process of recording the value of intangible assets acquired through a business combination.

Pooling of Interest

An accounting method for mergers and acquisitions where the assets and liabilities of the combining companies are aggregated.

Synergy

The benefit that results when two or more agents work together to achieve something neither could have achieved on their own.

Incremental Net Gain

The increase in net profit resulting from a specific action, taking into account all associated costs and revenues.