rms and the book value of the net worth of the combined companies is accounted for in the capital surplus account of the combined companies. The earned surplus of the acquired company is added to the capital surplus of the acquiring company (ôFASB Considers Changing æPoolingÆ Rule on Mergers,ö 1996).
The Internal Revenue Service established rules that determined whether the purchase method or the pooling of interests method was used. If a merger plan met the following basic conditions, the use of the pooling of interests method was required (Pallarito, 1997):
1. The first condition was that an acquiring firm issued o
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