Question #43

Reading: Reading 8 Intercorporate Investments

PDF File: Reading 8 Intercorporate Investments.pdf

Page: 18

Status: Incorrect

Correct Answer: A

Your Answer: B

Part of Context Group: Q43-44 First in Group
Shared Context
- What will be the post-acquisition current ratio, using both the acquisition method and the equity method, respectively, for TME? The choices below represent Acquisition and Equity, respectively. A) 1.01, 0.92. B) 1.21, 1.02. C) 1.04, 1.11.
Question
Using the acquisition method to account for the acquisition, what will be the post-acquisition current assets of TME?
Answer Choices:
A. $93,000
B. $118,000
C. $105,000
Explanation
Using the acquisition basis of accounting, the post-acquisition level of the current assets is the amount of the current assets prior to acquisition minus the amount of cash used for the acquisition. ($80,000 + 38,000 – 25,000) = $93,000.
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