One Company Acquires Another Company in a Combination Accounted for as an Acquisition

question 43

Multiple Choice

One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity 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 equity method is used, no worksheet entries are required in the consolidation process.

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Definitions:

Trade

Conducting transactions involving the exchange, sale, or purchase of goods and services by or among people and countries.

Consuming Outside

The act of purchasing and enjoying goods or services outside one’s home, such as dining at restaurants or outdoor markets.

Opportunity Cost

The sacrifice involved in not picking the subsequent preferable option at the time of decision-making.

Freight Train

A train that is used for transporting goods, cargoes, and commodities rather than passengers.