Advanced accounting Ch 1 solution Essay Example for Free

Advanced accounting Ch 1 solution Essay1A clientele faction is a union of business entities in which two or more(prenominal) previously separate and independent companies be brought under the control of a single direction team. Three situations establish the control necessary for a business combination, namely, when one or more corporations render subsidiaries, when one company transfers its pull in assets to another, and when each compounding company transfers its net assets to a newly make corporation.2The dissolution of all 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 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 c ombination occurs when two or more previously separate and independent companies are brought under the control of a single management team. jointure and consolidation in a generic sense are frequently used as synonyms for the bound 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 everyplace the assets of two or more previously separate companies and all of the combining companies are dissolved.4Good give arises in a business combination accounted for under the acquisition method when the cost of the investment ( true(p) 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 bring no effect on net income, unless the goodwill is deemed to be impaired. If goodwill is impaired, a loss will be recognized.5A bar obtain 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.