In this workout, Florence Inc. bought 80% of the equity capital of Rome Ltd for 3,355 The transaction was funded by 55 of balance sheet cash, an equity issuance with a value of 825 and the remainder with new debt We're asked to produce a sources and uses of funds table, a goodwill calculation and the consolidated balance sheet using the information below So let's start with our uses of funds. The first thing we had to do here was purchase the company So we need to purchase their equity of the target company and that figure was 3,355. I'm just going to hard code that in That was the only use of our funds, so we now ask where did we get that from? We got it from three sources The first was balance sheet cash, secondly from an equity issuance and lastly from a debt issuance The figures were 55 cash, 825 of equity issuance and the remainder was debt So in order to find that, I'll take the total amount we need minus the amounts we've already raised Giving me 2,475 of debt issuance So that's our first thing, the sources and uses of funds table. Next up, the goodwill calculation In this one, we're going to be using the fair value of net assets So I start off by taking the purchase price and the purchase price was 3,355 I then need to find what we've purchased i.e the value of net assets Now another way to find net assets, is to look at your target equity If I scroll down, I can go to Rome Ltd's balance sheet and there's the equity of 1,773.2 However that's 100% and we didn't buy it at 100%, instead we only bought 80% So the equity actually purchased (and in brackets I'll just put 80% so we actually remember) was the 100% times by 80% I can now calculate the deal goodwill, it's going to be the difference between the purchase price and the amount that we actually purchased It should have been worth 1,418.6 We paid a lot more than that, giving us goodwill of 1,936.4 Now we found the 80%, the NCI created must be the remaining 20% So I'm going to go up to the target's equity, times that by 20% and the NCI was 354.6 Remember that's using the fair value of net assets method That was the second thing we need to do, the third thing is to consolidate So I need to work out what my consolidation effects are going to be The first one is the target equity, we need to get rid of that The second one was the financing, we've used some cash, we've used some debt And the last one was the goodwill or the NCI created Add all of that together and the target and the acquirer and we'll get to our combo So let's start by doing that, I'm going to sum up those three consolidation effects plus the target and the acquirer's figure I'm now going to copy that down and I'll copy that into each of the individual line items I won't put it in the subtotal lines, we need to do something different there So for my subtotals (for total assets), I'll now add upwards Same for my total liabilities (add upwards) And the same for equity, the last one at the bottom (total liabilities and equity) I need to sum two cells Total liabilities and my total equity If we check that it balances, total liabilities and equity at the moment are 19,175.2 and exactly the same for my total assets So now let's start going through those consolidation effects The first one was the equity, we need to zero out the equity that currently exists I'm going to get rid of that common stock that's already there and the retained earnings We don't owe anything to any target shareholders anymore Next up was the financing, our first source of financing was cash So if I go up to my sources and uses of funds, cash was 55 and that was spent Next up was the debt issuance, so that's going to be long-term debt Again up to our sources and uses of funds, there it is The third and final one was common stock, again go to the sources and uses scroll up and the equity issued was 825 Our last consolidation effect was goodwill and NCI Now we calculated them just a little further above, the deal goodwill was 1,936.4 And the NCI created which is right down at the bottom near equity was 354.6 So that gets us through all of our consolidation effects and we should now have a balanced balance sheet My total liabilities and equity are 21,056.6 and my total assets are the same