In June 2001, the Financial Accounting Standards Board (FASB) eliminated the use of pooling for merger accounting. Since then, all mergers are handled as purchase accounting.

Company A buys Company B for $50. The net asset value of Company Bs assets is also $50.

Which of the following statements best describes the effect of the merger on the merged companys consolidated balance sheet?

A. Company Bs common equity will be added to Company As common equity in the consolidated balance sheet.

B. Company Bs assets will be deducted from Company As common equity in the consolidated balance sheet.

C. Company Bs assets will be added to Company As common equity in the consolidated balance sheet.

D. Company Bs assets will be added to the assets of Company As assets in the consolidated balance sheet.

When reporting merger transactions, the asset values acquired are often reappraised, and the change in value is reported in the financial statements. An increase in asset value will lead to (Options: lower/higher) depreciation charges. This will lead to (Options: an increase/ a decrease) in earnings per share.

Suppose the fair market value of goodwill declines during the reporting year. Which of the following statements is true about the treatment of goodwill for financial reporting purposes?

A. The amount of the decline will be charged to the earnings in the income statement.

B. The amount of the decline will not be charged to the earnings in the income statement.

True or false: The company with a larger market value in a merger is always the acquirer, and the company with a smaller market value in a merger is the target. The merger is expected to create synergistic benefits for only the target company.

True

False