When an Acquisition Is Made and Accounted for Using the Purchase

question 13

Multiple Choice

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

• A)is the sum of the pre-acquisition retained earnings accounts of the two combining companies.
• B)is the pre-acquisition retained earnings account of the acquiring company only.
• C)is the pre-acquisition retained earnings accounts of the acquiring company plus net income of acquired company in year of acquisition.
• D)is the pre-acquisition retained earnings accounts of the acquiring company less treasury stock of the acquired company.

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Definitions:

Interest Rate

The percentage of a sum of money charged for its use.

Original Principal

The initial amount of money borrowed or invested before any interest or earnings are applied.

Interest

The cost of borrowing money or the payment received for the use of money, typically expressed as an annual percentage rate.

Original Principal

The initial amount of money borrowed or invested, not including any interest or earnings.