Under the new-entity method, which of the following statements is TRUE?
A) The net assets of the acquiring company remain at book value while those of the acquired company are recorded at fair value.
B) The net assets of the acquiring company are recorded at fair value while those of the acquired company are recorded at book value.
C) The net assets of both companies are recorded at fair market value.
D) The net assets of both companies are recorded at book value.

Question

Quizplus · Accepted Answer

Under the new-entity method, the net assets of both the acquiring and acquired companies are recorded at their fair market value. This approach treats the business combination as the formation of a new entity, where all assets and liabilities of the combining entities are brought to fair value for the purpose of recording in the new entity's books.

Under the New-Entity Method, Which of the Following Statements Is