CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Assume that a U.S company properly accounted for an acquisition in 2011 using the pooling method. In general, the company's reported earnings in 2012:

I. Are unaffected by that accounting decision because pooling is not allowed.
II. Are higher than they would have been if acquisition method had been used.
III. Are lower than they would have been if acquisition method had been used.
IV. Are unaffected because that account decision impacts earnings only in the year of acquisition.
A. III and IV
B. I and II
C. II only
Explanation: Despite the fact that pooling is not allowed any more, its effects persist.

User Contributed Comments 2

User Comment
jpducros why would reported earning in 2012 be higher ?
jpowers Depreciation under pooling method is lower, because assets are measured at book value, unlike the acquisition method in which assets are measured at fair value, thus increasing depreciation.
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