Firms Sometimes Acquire Assets by Exchanging an Asset Other Than

question 55

Multiple Choice

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is

• A)the fair value of the asset received, only.
• B)the fair value of the consideration given, only.
• C)either the fair value of the consideration given or the fair value of the asset received, depending on which amount is lower.
• D)either the fair value of the consideration given or the fair value of the asset received, depending on which the firms can more reliably measure.
• E)either the fair value of the consideration given or the fair value of the asset received, depending on which amount is higher.

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Definitions:

Fair Market Value

The price that property would sell for on the open market, between willing buyers and sellers under no pressure to act.

Capital Balances

The amount of money that the owners or shareholders have invested in the company.

Salary Allowances

Additional benefits or compensations given to employees over and above their regular salary, which could include housing, transportation, or medical allowances.

Net Income

The ultimate earnings of an enterprise once it has accounted for all expenditures and taxes against its total sales.