In a 1976 discussion memorandum, the FASB defined the purchase method of accounting for business combinations as a method which:
a. results in the assets and liabilities of the subsidiary being valued at market value at the time of acquisition, and the parent’s assets and liabilities being valued at book value.
b. results in the assets and liabilities of the parent being valued at market value at the time of acquisition, and the subsidiary’s assets and liabilities being valued at book value.
c. results in all entities’ assets and liabilities being revalued to market values at the time the combination originates.
d. uses the book values of the combining companies.
ANSWER: A
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