Mock Exam AM Q36 increase, purchase, somehow, assets, equity

grharmeyer

Why would shareholder's equity increase from 1,300 to 1,800 after acquiring 50% of Lisam? I chose answer A, thinking that equity would stay the same after considering the purchase price.

If Merick (the acquirer) is paying $500Mil for 50% of Lisam, wouldn't you have to deduct $500Mil from assets somehow?

kkn006

Yea, I had the same question but I guess when they say "consolidate the balance sheet" they are asking to use the consolidation method (somebody else replied to one of my post's earlier about this). Using the consolidation method you then would have to add on the minority interest which is 500 Million.

kingstongal

OK - that makes sense...tricky. I think the answer key could've pointed that out better (as you did).