Which one of the following is a characteristic of a business combination accounted for as an acquisition?
A) The combination must involve the exchange of equity securities only.
B) The transaction establishes an acquisition fair value basis for the company being acquired.
C) The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company.
D) The transaction may be considered to be the uniting of the ownership interests of the companies involved.
E) The acquired subsidiary must be smaller in size than the acquiring parent.

Question

Quizplus · Accepted Answer

When a business combination is accounted for as an acquisition, the transaction establishes an acquisition fair value basis for the company being acquired, which is then used to prepare consolidated financial statements. This means that the assets and liabilities of the acquired company are recorded at their fair values at the time of acquisition, and any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. The other options are not characteristics of a business combination accounted for as an acquisition.

Which One of the Following Is a Characteristic of a Business