Advanced accounting Ch 1 solution Essay

1A byplay line combining is a union of business entities in which two or more antecedently separate and independent companies argon brought under the control of a champion management team. leash situations establish the control necessary for a business combination, namely, when one or more commodes become subsidiaries, when one company transfers its net assets to another, and when each combine company transfers its net assets to a newly formed corporation.2The dissolution of whole but one of the separate legal entities is not necessary for a business combination. An example of one form of business combination in which the separate legal entities are not dissolved is when one corporation becomes a subsidiary of another. In the case of a parent-subsidiary relationship, each cartel company continues to exist as a separate legal entity tear down though both companies are under the control of a virtuoso management team.3A business combination occurs when two or more previously separate and independent companies are brought under the control of a single management team. Merger and consolidation in a generic smell are frequently used as synonyms for the term business combination. In a technical sense, however, a merger is a type of business combination in which all but one of the combining entities are dissolved and a consolidation is a type of business combination in which a new corporation is formed to take all over the assets of two or more previously separate companies and all of the combining companies are dissolved.4Goodwill arises in a business combination accounted for under the learning method when the cost of the investment funds (fair rate of the consideration transferred) exceeds the fair value of placeable net assets acquired. Under GAAP, thanksgiving is not amortized for financial account purposes and will have no effect on net income, unless the goodwill is deemed to be impaired. If goodwill is impaired, a loss will be recognized.5A contract purchase occurs when the acquisition price is less than the fair value of the identifiable net assets acquired. The acquirer records the gain from a bargain purchase as an ordinary gain during the period of the acquisition. The gain equals the difference between the investment cost and the fair value of the identifiable net assets acquired.