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Which of the following statements regarding the accounting for business combinations is false?

a) Goodwill is recognized as an asset.
b) Acquisition costs are included in the financial statements.
c) Consolidated financial statements are prepared.
d) Pooling of interests is the only method allowed.

User Koitt
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Final answer:

The false statement regarding accounting for business combinations is that 'Pooling of interests is the only method allowed.' This method has been replaced by the acquisition method.

Step-by-step explanation:

The question pertains to the accounting principles surrounding business combinations. When accounting for a business combination, several key principles must be adhered to. These include:

  • Goodwill is recognized as an asset on the balance sheet when the purchase price of the acquired entity exceeds the fair value of its identifiable net assets.
  • Acquisition costs, such as finder's fees, advisory, legal, accounting, valuation, and other professional or consulting fees are generally expensed as incurred and not included in the cost of the acquisition.
  • Consolidated financial statements are prepared to present the accounts of the combined entity as if they are a single entity.
  • The method known as pooling of interests was once allowed under U.S. Generally Accepted Accounting Principles (GAAP), but has been replaced by the acquisition method. Thus, pooling of interests is no longer permitted for business combinations.

Therefore, the false statement in the list provided by the student is: 'd) Pooling of interests is the only method allowed.'

User Daan Poron
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