POOLING VERSUS PURCHASE INCOME STATEMENTS. The text indicates that a pooling-of-interests business combination transfers the book values of subsidiary assets to the consolidated balance sheet while a purchase combination transfers subsidiary assets to the consolidated balance sheet at fair value. A purchase combination may also involve creation of consolidated goodwill, while a pooling does not.

REQUIRED:
1. What will be the effects on net income in the period of the business combination and on future income statements of the purchase-pooling differences for recording ‘ assets and goodwill?
2. If management of the parent can cause a business combination to be either a purchase or a pooling, which do you think management would prefer? Briefly explain your answer.