Advanced accounting Ch 1 solution Essay Example for Free

Advanced accounting Ch 1 solution Essay1A crease combination is a coalition of business entities in which cardinal or more previously separate and independent companies ar brought under(a) the jibe of a single management team. iii situations establish the control necessary for a business combination, namely, when one or more corporations become subsidiaries, when one familiarity transfers its net assets to another, and when each combining company transfers its net assets to a newly formed corporation.2The dissolution of all but one of the separate legal entities is not necessary for a business combination. An workout 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 combining company continues to exist as a separate legal entity even though both companies are under the control of a single management team.3A business comb ination 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 sense 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 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 acquisition method when the price of the investment (fair value of the consideration transferred) exceeds the fair value of identifiable net assets acquired. Under GAAP, goodwill is not amortized for financial reporting purposes and will have no effect on net income, un slight the goodwill is deemed to be impaired. If goodwill is impai red, a loss will be recognized.5A bargain 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 release between the investment cost and the fair value of the identifiable net assets acquired.