How is the Balance Sheet of a combined company structured after an acquisition?

The structure of the balance sheet of a combined company after an acquisition correctly reflects the sum of both companies’ balance sheets plus goodwill. When an acquisition occurs, the acquiring company adds both its own assets and liabilities along with those of the acquired company to create a comprehensive picture of the new entity's financial position.

Goodwill arises when the purchase price exceeds the fair value of the identifiable net assets (assets minus liabilities) of the acquired company. This excess is recorded as goodwill on the balance sheet, indicating the value of intangible assets such as brand reputation, customer relationships, and synergies anticipated from the acquisition.

This comprehensive approach provides a better understanding of the combined company’s overall financial strength and operational capacity. This contrasts with other choices, which do not accurately represent the financial realities post-acquisition. For instance, showing only the assets of the acquiring company disregards the contributions of the acquired company, while only displaying the liabilities of the acquired company would provide an incomplete and misleading view of the new entity's obligations. Lastly, reflecting the independent balance sheets of both companies fails to merge their financials and does not capture the impact of the acquisition on the overall financial position.