Final answer:
The correct answer to the question is C) I and II, which states that within the acquisition method, expenses related to the business combination are expensed, and stock issue costs are treated as a reduction in the issue price. Statements III and IV are incorrect, as not all merger and stock issue costs are expensed and goodwill can be recorded.
Step-by-step explanation:
The observation consistent with the acquisition method of accounting for business combinations is that expenses related to the business combination are expensed, and stock issue costs are treated as a reduction in the issue price. Therefore, the correct answer is C) I and II. According to the acquisition method:
- Expenses related to the business combination (like finder's fees, consulting fees, administrative costs) are expensed as they are incurred.
- Costs related to issuing stock (like underwriting, legal, accounting, and other costs) are treated as a reduction of the proceeds received from the issue, which effectively reduces the additional paid-in capital or share premium associated with the stock issue.
Statement III is incorrect because not all costs, like stock issue costs, are expensed—they are accounted for as described above. Statement IV is incorrect as goodwill is indeed recorded in a business combination when the purchase price exceeds the fair value of the net identifiable assets a.