In this workout we're told that A incorporated buys all of the equity of B Inc from the shareholders of B Inc for 35 in an all cash deal, we'll need that number later Produce the consolidated balance sheet of A Inc So let's go through the formula we need to do We need to take our investor's balance sheet We then need to add onto that the investee's balance sheet plus or minus any transaction effects And we're going to have a few of them and that will eventually give us our combo set of accounts So let's go into it. Our investee is going to be B Inc, we need their accounts and we can get that from further up the page Bring those numbers down There we've got B Inc balance sheet prior to the deal I now need some transaction effects, the first one was the cash that was spent We know that the cash spent was 35, so let's put that in Negative 35, done! The next thing is, what have we done with that cash? Well we've bought out B's shareholders, so their equity doesn't exist anymore We need to zero out that 30 of shareholder's equity So what the consolidated accounts will then do, it'll take the 120 of A plus the 30 of B, minus the 30 of B We'll zero that out, we'll end up with just A's equity of 120 So so far we've spent 35 buying some shares which in the books are only worth 30 Where's the other 5 gone? Well we must have deemed there to be extra value above the book value Maybe the target has a good brand, it's got a really strong customer lists That value, it's not on the balance sheet but we do need to pay for it So that's going to be our plug item or goodwill And that figure is going to be 5 So I've spent 35, what have I gained? I've gained 5 of goodwill (so that's an asset) and we've gotten rid of 30 of equity Let's put it all together now in our consolidated set of accounts or combo set of accounts Remember I need to sum across, I need to take the A Inc figures plus the investee's and then plus/minus any transaction effects and we've got three of them here Cash, equity and that plug goodwill So I sum across for my current assets and long-term, current liabilities and long-term liabilities and shareholder's equity You can see that there Let's check the assets and liabilities and equity balance And they do, they both come to 410 and there on the right hand side is our combo or consolidated set of accounts