CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) true with respect to the pooling method of consolidating businesses?

I. The pooling-of-interest method is no longer an option for companies reporting in accordance with U.S. GAAP.
II. When a merger of two businesses is involved, a clear distinction must be made as to which firm will be the acquirer and which will be the firm that's being acquired.
III. The market value of the assets and liabilities of the acquired firm is combined with the book value of the acquiring firm.
IV. After the business combination, the new entity must restate prior period financial statements as if it had always operated as combined entity.
A. I, II and III
B. I, III and IV
C. I and IV
Explanation: II is incorrect because with pooling-of-interest, there is no distinction made between the acquiring firm and the target firm. Furthermore, there are no adjustments made to reflect the fair market value of both assets and liabilities; thus III is incorrect as well.

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