One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?
A) It is the only method allowed by the SEC.
B) It is relatively easy to apply.
C) It is the only internal reporting method allowed by generally accepted accounting principles.
D) Operating results on the parent's financial records reflect consolidated totals.
E) When the initial method is used, no worksheet entries are required in the consolidation process.

Question

Quizplus · Accepted Answer

The initial value method is relatively easy to apply, which could be a reason why the acquiring company chose to use it. Other reasons for choosing this method could include the desire for more detailed information on the acquired company's assets and liabilities or the belief that it will result in a more accurate reflection of the combination's financial effects. However, it is important to note that the initial value method is not the only method allowed by the SEC or generally accepted accounting principles, and it may involve worksheet entries in the consolidation process.

One Company Acquires Another Company in a Combination Accounted for as an Acquisition