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QUESTION 27 The primary difference between: (1) accounting for a business combination when the subsidiary is dissolved; and (
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Answer #1

The given statement is true.

Business combination is case where one company acquires all the stock of another company. It should acquire all the stock of target company before legally dissolving the target company. After acquiring all the stock, dissolving company’s records are closed out. The surviving or acquiring company book is adjusted to show the balances including that of dissolved company

On the other hand, if incorporation is done, both the company will retain its own records. Worksheets need to be prepared which will reflect periodic consolidation process and not disturb the individual accounting policies of both the company. That means here consolidation won't be formally recorded unlike that in above case of dissolution of target company.

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