When a company purchases another company for an amount difterent than the book value of the acquired company's net assets, the difference must be allocated in the manner prescribed by generally accepted accounting principles. Often the treatment is relatively straightforward, but sometimes less clear-cut issues arise.

Required

a. What is the nature of the goodwill associated with Centrex Corporation's Home Building subsidiary's fiscal 1997 combination transaction with Vista Properties? How was this amount treated subsequent to the combination?

b). When one company purchases another, the other company may have research and development efforts underway, referred to as "in-process research and development." If these research and development efforts of the acquired company have value to the acquiring company, a portion of the purchase price must be assigned to them. How do Compaq Computer, Analog Devices, and Mylan Laboratories account for the cost they assign to in-process research and development when they purchase other companies? What justification can be given for this treatment?