Chapter 7, Problem 7A.1AP

To determine

Business combination:

A business combination refers tothe combining of one or more business organizations in a single entity. Business combinations lead to the formation of combined financial statements. After business combination, the entities having separate control merge into one having control over all the assets and liabilities. Merging and acquisition are two types of business combinations.

Consolidated financial statements:

Consolidated financial statements refer to the combined financial statements of entities which are prepared at year-end. Prepared when one organization is either acquired by the other entity or two organizations merged to form a new entity, consolidated financial statements serve the purpose of both the entities about financial information.

Value analysis:

Value analysis in a business combination is an essential part of determining the worth of the acquired entity. This type of analysis helps compute goodwill or gain on acquisition. If the net worth of the acquired entity is less than the consideration paid, then it results in goodwill, and if the net worth of the acquired entity is more than the consideration paid, then it results in gains on the acquisition.

To prepare: The worksheet necessary to produce the consolidated balance sheet of Company M and its subsidiary as of December 31, 2019.