When an Acquisition Is Made and Accounted for Using the Purchase

question 7

Multiple Choice

When an acquisition is made and accounted for using the purchase method, the post-acquisition common stock account:

• A)is the sum of the pre-acquisition common stock accounts of the two combining companies.
• B)is the pre-acquisition common stock account of the acquired company only.
• C)is the pre-acquisition common stock account of the acquiring company plus the par value of new stock issued to affect the acquisition.
• D)is the pre-acquisition common stock account of the acquiring company plus the fair value of new stock issued to affect the acquisition.

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Definitions:

Net Sales

The revenue from goods or services sold by a company after deducting returns, allowances for damaged or missing goods, and any discounts allowed.

ROE

Return on Equity, a profitability measure that calculates the ability of a company to generate profits from its shareholders' equity.

Profit Margin

A financial ratio that shows the percentage of revenue that exceeds the cost of goods sold, indicating the profitability of a company.

Assets

Resources owned or controlled by a business, individual, or entity, considered valuable because they can produce positive economic value or provide future benefits.