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A casual review of business news won’t take long to reveal a story about one business buying another.Such acquisitions are common and number in the thousands annually.
Remember that assets and liabilities are not necessarily reported at fair value.
Notice that Sledge’s total equity is highlighted to call attention to its reported balance of 0,000. Premier became the sole owner of Sledge, which has assets that are reported on Sledge’s books at 0,000, and liabilities that are reported at 0,000.
It may seem odd that Premier’s investment is reported at 0,000, while Sledge’s equity is only 0,000. The resulting net book value (0,000 – 0,000 = 0,000) corresponds to Sledge’s total stockholders’ equity.
Therefore, accounting rules require that parent companies “consolidate” their financial reports and include all the assets, liabilities, and operating results of all controlled subsidiaries.
For example, the financial statements of a conglomerate like General Electric are actually a consolidated picture of many separate companies controlled by GE.
These transactions can be simple or complex, but generally involve the acquirer buying a majority of the stock of the target company.