Midvale Corporation plans to acquire ownership of Bostwick Corporation in an exchange of common shares to take place in the middle of the current year. The president of Midvale Corporation is attempting to anticipate the financial statement impact of acquiring Bostwick Corporation and is particularly interested in the goodwill that might arise in the business combination.

a. From an accounting perspective, explain the nature of goodwill. Is goodwill an asset? Explain.

Under what conditions is goodwill recorded and at what amount?

b. After it is recorded, how is goodwill treated?

C-. Other than goodwill, what dollar amounts will be reported differently in the financial statements of the combined company prepared subsequent to the coinbination if the combination is recorded as a pooling of interests rather than a purchase?

d. Which method of accounting for the business combination is likely to result in higher reported net income for the combined company in the year of the combination? Why?