The Most Political Issue in the FASB's Most Recent Deliberations

question 7

Multiple Choice

The most political issue in the FASB's most recent deliberations and pronouncements on business combinations was:

• A)The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination.
• B)The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the combination.
• C)The unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination.
• D)The unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.

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Definitions:

Useful Life

The estimated duration of time that an asset is expected to be usable for its intended purpose, affecting depreciation calculations.

Salvage Value

The conjectured remaining value of an asset at the close of its functional lifetime.

Discount Rate

This refers to the interest rate employed in DCF calculations to figure out the present value of upcoming cash flows.

Net Present Value

A financial measure that determines the net present value by subtracting the total outgoing cash flows from the incoming cash flows over a certain time period.