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The Characteristics of a Business Combination

Which one of the following is a characteristic of a business combination that should be accounted for as an acquisition?

The combination must involve the exchange of equity securities only.
The transaction establishes an acquisition fair value basis for the company being acquired.
The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company.
The transaction may be considered to be the uniting of the ownership interests of the companies involved.
The acquired subsidiary must be smaller in size than the acquiring parent.

Solution Preview

GAAP requires that companies which acquire other companies record the business combination as an acquisition at the purchased company's fair market value. This "purchase" method recognizes that the companies are separate operating ...

Solution Summary

This solution discusses the characteristic which distinguishes the acquisition method of accounting for business combinations.