Quick Question about the Balance Sheet
I’m having a tough time trying to understand the full effects of an acquisition.
1. When a company makes an acquisition, the goodwill should go up by the premium that’s paid over what the company is worth. How is this connected with the income statement, though?
2. I’ve read several articles saying a high amount of goodwill is bad because it can be impaired. How does this happen?
3. Finally, when you make an acquisition and assets go up on the balance sheet, what equalizes this on the other side of the balance sheet? Do liabilities or equity go up? Do shares outstanding increase due to the fact that you now have another company on hand?
Sorry for all of the questions, I’m just having a tough time understanding this. Thanks in advance.
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