 Hello and welcome to the session in which you would look at how companies consolidate in mid-year acquisition. In all the prior examples, we looked at full year acquisition. So what happened if the company acquired the company sometime in March, in July 1st, so on and so forth? This topic is covered in an advanced accounting course as well as the CPA exam. Whether you are an accounting student or a CPA candidate, I strongly suggest you take a look at my website farhatlectures.com. I don't replace your CPA review course. I'm a useful addition. I'm a supplemental material to your CPA review course. I can help you understand the material better, which in turn will help you perform better on your exam. Your risk is one month of subscription. Your potential gain is passing the exam. If not for anything, take a look at my website to find out how well or not well your university doing on the CPA exam. I do have resources for other college courses. Here's a list of my catalog and my CPA supplemental courses are aligned like with Becker, Roger, Wiley, Gleam. So it's very easy to follow between my material and your CPA review course. I do also have all the AICPA previously previously released question. If you have not connected with me on LinkedIn, please do so. Take a look at my LinkedIn recommendation, like this recording, share it with other connect with me on Instagram, Facebook, Twitter and Reddit. So now we're going to look at a mid-year acquisition. So it's not a full year acquisition. What happened is this, the new parent company, they must first compute the subsidiary's book value as of the acquisition date to determine the access total fair value over book value allocation. Remember, every time we buy a company, we have to determine what's their fair value. How much did we pay? What's the access and allocate that access to various assets? If there's no various assets, we allocate it to goodwill. But we have to compute the book value as of the acquisition date stopped there. We also have to prorate any access amortization expenses, any dividend distribution. We have to execute any revenues and expenses prior to the acquisition itself. Also, we have to, in other words, post acquisition revenues and expenses only included in consolidation. So anything prior, we execute anything prior to the acquisition. And we would look at an example to see how this all works. The best example in real life is to show you, is to illustrate Comcast when they purchase AT&T broadband. Comcast that year reported 8.1 billion in revenues. However, what they did, they had a pro-format income statement, pro-format means what if, and they said, if they included all of broadband, AT&T broadband revenue, the revenue would have been 16.8. And the reason they did this is because they acquire AT&T broadband sometime during the year. And what they were telling investors, look, when you're projecting our revenue next year, our starting point should be around 16.8. Because if we included AT&T broadband, our revenue would have been 16.8. Therefore, they excluded for now 8.7 billion, that potentially could be included for next year. And why did they exclude this 8.7 billion? Because it was earned for that year prior to the Comcast acquisition. So I just want to make you aware of this. It's very important relevant information. Let's take a look at an actual example. Atom company paid $900,000 to purchase 90% of Ryan's company on July 1st, 2025. Ryan's fair value was a million dollar. The book value was common stock and retained earnings total of 800,000. Then we have to compute the access fair value. The access fair value, we paid $200,000 more. Let's see what are we going to allocate this? We're going to allocate the full thing to a trademark worth of 200,000. Therefore, we have no goodwill because the full amount was allocated to the trademark. Therefore, goodwill is zero. Now, since we're going to be allocating this over four years, we have to kind of compute the amortization expense. Remember, we purchased this company as of July 1st. Therefore, we're going to have to amortize, we have to prorate the amortization expense. Simply put, we're going to debit amortization expense 50,000, credit trademark 50,000. Now, why 50,000? Because it's 200,000. We're going to divide this by four on a yearly basis. We amortize 100,000 times one half because this is for a half a year. We purchased the company as of July 1st. Therefore, we're going to amortize 50,000. It's very important to understand this amortization process. This is what we're going to do. Then, both companies reported income at the end of the year and assume revenues was earned evenly. Ryan reported 300,000 of revenues, Adam 450. Their expenses were as followed, 325 for Adam, 154 Ryan. Quarterly dividend was Ryan reported 20,000. Adam reported 100,000. Now, we are ready to prepare the consolidated financial statements for Adam company. How much revenue do we include? Well, we're going to include debt of Ryan plus debt of Adam. But again, Ryan, we're only going to include 50%. So, 450 plus half of 300,000 is 150. Therefore, it's 600,000. This is the consolidated revenues are 600,000. Expenses. How are we going to deal with the expenses? Well, we're going to combine debt of Adam's and Ryan, which they add up to 475. Then, we're going to deduct half of Ryan's minus 75. That's going to keep us at 400,000. Then, we are going to take half of the amortization expense plus 25, half of the amortization expense. So, total expenses will be 425. So, the consolidated net income will be 175,000. Now, let's compute the non-controlling interest, which is $5,000. We have to deduct from the consolidated net income, and that's the income that belongs to the minority shareholders or the non-interest shareholders over the second half of the year. Well, the second half of the year, we made 150,000 in income, which is 150 of revenues minus 75 of expenses. The other half of the year, that's 75,000. Then, 150, which is 300 minus 150 equal to 150. Then, we have to deduct 50,000 of the amortization expense, which will bring us down to 100,000. Now, the 100,000, the minority shareholder, they will get 10% of that. 10% is 5,000. I'm sorry, 10% is 10,000. We're going to have to prorate this by half a year, and that's going to give us 5,000. Therefore, we're going to deduct an additional 5,000, the non-controlling interest. Basically, this will be the consolidated income statement figure. What's left is the income that goes to the parent company. The parent company will get to the controlling interest is 170. This is the consolidated financial statements. Now, also, at the end of the year, what we're going to have to do, we're going to have to do the elimination entries. Basically, we have to eliminate the book value of Afrayans' company, the retained earnings. We have to eliminate all of this against investment. But we have to eliminate other things, such as the part of the revenue that's part of the income statement that belongs, that's pre-July 1st. Simply put, we're going to have to debit the common stock of Afrayans' company. We have to debit the revenues, the 150,000 Afrayans' company, to take out that revenue. We have to credit the expenses, 75,000 of the expenses. Usually, we don't do those if we have a full year. Then we also have to credit the dividend declared for half a year, which is for the 10,000. Now, we have to eliminate retained earnings. This is the retained earnings as of July 1st, 2025. Now, we have to go back to January 1st, 2025, and eliminate that retained earnings. What do we have to do? Basically, we have to roll it back. Well, how do we do this? Well, we have 200,000 as of July 1st. Then we have to deduct from that. We have to reduce it by 75,000. Why? Because income for that period was 75,000. Income was that period. Then we have to add 10,000 in dividend because we have to roll back half of the dividend. So overall, that's going to give us beginning retained earnings of 135. Therefore, we're going to debit beginning retained earnings of 135. Now, all in all now, we need to close it to investment. Generally speaking, we close that to investment. Simply put, we have a book value of 800,000 and we need to close it. Now, we cannot close the whole thing to investment because we only own how much? 90%. Therefore, 90% is going to go to investment and the 10% will go to the non-controlling interest. Therefore, we established an uncontrolling interest at 80,000 and we, which is again, what is the 80,000 coming from? 10% of the 800,000 of the book value and this is 90% of the 800,720. Hopefully, this recording showed you how we can do this, how we can close those accounts. At the end of this recording, once again, whether you are an accounting student or a CPA candidate, I don't replace your CPA review course. I'm just, I'm going to add information to your knowledge. Give me a chance, invest in yourself, invest in your career. The CPA exam is worth it. Good luck, study hard and of course, stay safe.