In a typical acquisition where the seller is fully absorbed, what happens to the seller's equity on the consolidated balance sheet?

In a typical acquisition where the seller is fully absorbed, what happens to the seller's equity on the consolidated balance sheet?

• A. It remains as a separate equity line
• B. It is wiped out
• C. It becomes a liability
• D. It doubles

Answer: (B)

In consolidation, you combine the assets and liabilities of the parent and the acquired entity and you eliminate the acquired entity’s equity because the parent now owns those resources outright. When the seller is fully absorbed, there is no minority interest, so the former owner’s equity lines are removed from the consolidated balance sheet. The net effect is that the seller’s equity is wiped out and replaced by the parent’s equity structure (plus any goodwill recognized for the acquisition). This eliminates double counting of ownership claims and reflects that the consolidated entity is a single economic entity.

In consolidation, you combine the assets and liabilities of the parent and the acquired entity and you eliminate the acquired entity’s equity because the parent now owns those resources outright. When the seller is fully absorbed, there is no minority interest, so the former owner’s equity lines are removed from the consolidated balance sheet. The net effect is that the seller’s equity is wiped out and replaced by the parent’s equity structure (plus any goodwill recognized for the acquisition). This eliminates double counting of ownership claims and reflects that the consolidated entity is a single economic entity.