Accounting/Modeling Question
All,
Been a reader for a while, first time poster.
Having a bit of trouble understanding something in a model I'm working on. Made the numbers easy to follow.
A client of ours wants to buy out his passive partner using debt. Simply, "Mr. A" wants to buy out "Mr. B". Mr. B owns 16.7% (1/6) of the company.
Assets:
Cash - $2
AR - $2
PPE - $2
A = $6
L&E:
AP - $1
Debt - $0
Mr. A Equity - $(2.5)
Mr. B Equity - $(0.5)
Retained Earnings - $2
L&E = $6
The negative Equity values are throwing me off. It should go: Assets = 0 change, Debt = $0.5 up, Equity = $0.5 down, no? Putting "Mr. B Equity" to 0 would be increasing the Equity side, thus increasing the L&E side (A side shouldn't move). What am I missing/overlooking?
Thanks in advance for the help. New to the game.
first of all, A=$6, L&E = $0 so this balance sheet doesn't make any sense. if E is negative, you add it as a negative value.
i suggest reading an accounting book or watching some lecture videos on accounting before proceeding any further.
you'd also have to buy the stake at market value not book value...
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