Question on M&A Accounting
Currently prepping for an interview, and one of my prep questions is "You just purchased a company for $1m and paid using half cash and half debt. How does this affect the financial statements?" I can detail how they are all connected, but how would an acquisition be recorded on the balance sheet? Should I just treat it very high level and say it is a capital expenditure and there is therefore no immediate affect on the income statement?
balance sheet - add up B/S items, then 500k to the combined b/s in debt, (500k) in cash, wipe out goodwill, record goodwill created, check DTA, wipe out target's equity, make adjustments to the target's debt (if any)
income statement - synergies, adjust interest expense
if you told me in an interview what you wrote in the last sentence, I would have questioned your technical knowledge.
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