In this workout we're told that Bologna Inc bought 100% of the equity capital of Ascoli Plc for 85 million The transaction was funded by 1.5 million of balance sheet cash An equity issuance with a value of 50 million and the remainder with debt We're asked to produce a sources and uses of funds table, a goodwill calculation and the consolidated balance sheet So we start with the sources and uses of funds and I've put some of my labels in already What we've got firstly is the use of funds and our only use is to purchase the equity of Ascoli Where did I get the funds in order to do that? My sources of funds came from balance sheet cash equity issuance and debt issuance, all given to us in the question So we bought the equity of Ascoli for 85 million and our sources of funds for 1.5 of cash The equity issuance of 50 and the remainder was debt and the remainder is 33.5 million All adding up to 85 million So that's our sources and uses of funds table done, next up we move onto goodwill So I need to work out the premium paid above book In order to do this I find the purchase price and then I workout how much that is above shareholders' equity purchased So the purchase price was 85 million We now need to go looking for the shareholders' equity purchase, so that's in Ascoli We can find that in Ascoli's balance sheet And there it is, the total equity 40.3 million being the common stock and retained earnings added together So we go back up, so I want to find the difference between the purchase price and that 40.3 and that difference is 44.7, so that's my premium paid above book or my goodwill I now want to consolidate the two balance sheets and what we're going to do is take the investor Bologna plus Ascoli (the investee), plus any transaction effects And we've got three transaction effects, the first one is we need to get rid of the target company's shareholders' equity Remember we've bought it, we've basically ripped up those shares, they don't exist anymore We also need to deal with the financing and that comes from the sources and uses of funds tables And lastly we need to put the goodwill in, the new goodwill that's been created So we start off with target shareholders' equity I go down to common stock and I want to get rid of the 17 and I want to get rid of the 23.3 So as we add across, we'll take the 10 of the investor's equity plus Ascoli's ( the investee's) 17 minus Ascolis' 17, so we zero out that equity there Next up, let's move onto the financing. There were three sources of finance, the first was cash 1.5 million Cash gone down. The second one was new debt was issued of 33.5 million And the last one was an equity issuance of 50 million The last transaction effect was goodwill, we had brand new goodwill being created and that was 44.7 I now want to add these altogether to get to my combo, so if we look at cash for instance I now sum across investor's cash of 2.8, plus investee's cash of 2.1, plus any transaction effects (in this case financing) I can reveal my figures for the balance sheet and all I've done is added across in each case So goodwill, exactly the same Total assets and subtotals we then just add upwards And we now check that the balance sheet balances and it does, 479