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You are analyzing the financial statements of ABC Corp. at the end of fiscal 2006. You notice that during the year, they made a major acquisition. Nowhere in the annual report does it state whether ABC used purchase or pooling-of-interests accounting for this acquisition. It made no other acquisitions during the year, and there were no disposals of any lines of business.
How would you determine whether purchase accounting or pooling-of-interests accounting had been used. Give three ways. Explain fully.
Standard Cost System
An accounting system that uses predetermined costs for product costing and variance analysis.
Variable Manufacturing Overhead
Costs in manufacturing that vary with production volume, such as supplies and utilities directly involved in the production process.
Machine-Hours
A unit of measure that represents the operation of one machine for one hour, used in manufacturing to allocate costs based on machine usage.
Standard Costing System
An accounting system that uses standard costs for determining the cost of products or services, facilitating variance analysis against actual costs.
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