On February 1, Piscina Corporation completed a combination with Swimwear Company accounted for as a pooling of interests. At that date, Swimwear’s account balances were as follows:

Inventory.

Land.

Buildings.

Unpatented technology.

Common stock ($ 10 par value)

Retained earnings, 1/1.

Revenues.

Expenses.

Book Values S 600,000 450,000 900,000 -0- (750,000) (1,100,000) (600,000) 500,000 Fair Values 650,000 750,000 1,000,000 1,500,000 Piscina issued 30,000 shares of its common stock with a par value of S25 and a fair value of Si 50 per share to the owners of Swimwear for all of their Swimwear shares. Upon completion of the combination, Swimwear Company was formally dissolved.

Prior to 2002, business combinations were accounted for using either purchase or pooling of interests accounting. The two methods often produced substantially different financial statement effects. For the scenario above,

a. What are the respective consolidated values for Swimwear’s assets under the pooling method and the purchase method?

b. Under each of the following methods, how would Piscina account for Swimwear’s current year, but prior to acquisition, revenues and expenses?

• Pooling of interests method

• Purchase method

c. Explain the alternative impact of pooling versus purchase accounting on performance ratios such as return on assets and earning per share in periods subsequent to the combination.