Which of the following statements is true regarding the acquisition method of accounting for a business combination?

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.

Answer: B

Learning Objective: 02-04

Topic: Acquisition―Valuation principles

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement