Advanced accounting Ch 1 solution Essay

1A air combination is a heart of teleph cardinal line entities in which two or more previously separate and free-living companies atomic number 18 brought under the inhibit of a angiotensin-converting enzyme management team. Three situations take a shit the control necessary for a crinkle combination, namely, when one or more corporations start out subsidiaries, when one company transfers its dough assets to another, and when each corporate trust company transfers its pass assets to a newly form corporation.2The dissolution of exclusively but one of the separate sanctioned entities is not necessary for a line combination. An example of one form of business combination in which the separate healthy entities atomic number 18 not dissolved is when one corporation becomes a subsidiary of another. In the case of a p arent-subsidiary relationship, each combining company continues to exist as a separate legal entity even though both companies are under the control of a si ngle 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 sense are frequently used as synonyms for the barrier business combination. In a practiced sense, however, a merger is a typesetters case of business combination in which every(prenominal) 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 learning method when the cost of the investment (fair judge of the consideration transferred) exceeds the fair jimmy of recognisable net assets acquired. Under GAAP, goodwill is not amortized for financial reporting purposes and will lose no effect on net income, unless(prenominal) the goodwill is deemed to be impaired. If goodwill is impaired, a loss will be recognized.5A quite a little purchase occurs when the acquisition price is less than the fair value of the identifiable net assets acquired. The acquirer records the learn from a sight 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.