Choice "A" is correct. With acquisition accounting the net assets acquired are based on fair market value. The fair value of finished goods and merchandise inventory are based upon selling price less disposal costs and a reasonable profit allowance.
Choice "c" is incorrect. The fair value of raw materials should be based upon replacement costs.
Choice "d" is incorrect. The fair value of work in process should be based upon the estimated selling price of finished goods less the costs to complete and dispose and a reasonable profit allowance.
Choice "b" is incorrect. Replacement costs are an appropriate measure of fair market value for raw materials inventory, but not finished goods.