In reverse acquisitions, the legal acquirer purchases the legal target by issuing shares or by paying in cash, but the legal target controls the legal acquirer. This acquisition method is frequently used to list private firms in stock exchanges without initial public offerings. What is the accounting for reverse acquisitions? The consolidated financial statements are presented as if the legal target purchased the legal acquirer. Therefore, (the) legal form of the business combination is ignored for accounting purposes. Let me please give you an example. Firm A and Firm T balance sheets on January 1st, 2022, are presented in the next slide. Firm A has 100 shares and Firm T has 450 shares issued and outstanding on January 1st, 2022. Firm A and Firm T's net assets' values approximate their fair values. Firm A acquires all shares of Firm T by issuing and exchanging 300 Firm A shares on January 1st, 2022. Firm A share price is $40 and Firm T share price is $50 on this date. Here we are given Firm A and Firm T balance sheets, before Firm A issues 300 shares in exchange for all shares of Firm T. The first question asks to provide the consolidated balance sheet on January 1st, 2022. In this question, the legal acquirer is Firm A because Firm A purchases Firm T by issuing Firm A shares. However, the accounting acquirer is Firm T because Firm T shareholders own 75%, which is 300 divided by 400 Firm A shares, of the combined entity. Let's please remember that Firm T has 450 shares. If Firm T would purchase Firm A, Firm T would need to issue and exchange 150 Firm T shares, so that Firm T shareholders own 75% of the combined entity. Therefore, the value of this deal is 150 Firm T shares times $50, which is the Firm T share price; which is equal to $7,500. Let's please remember the investment equation. The equity investment account has three components: net book value of assets, fair value adjustment, and goodwill. Net book value of assets for Firm A is the difference between total assets of $5,000 and total liabilities of $500, which is going to be $4,500. Fair value adjustment in this question is 0. This implies that goodwill in this example must be $3,000. If we go to the consolidation process, we sum Firm A and Firm T cash balances, and find consolidated cash balance of $3,200. For plant, property, and equipment consolidation, we sum plant, property, and equipment balances of Firm A and Firm T, and find $4,800. Next, the goodwill is created with a balance of $3,000. Consolidated liabilities is $2,500, which is the summation of liabilities of Firm A and Firm T. Consolidated shareholder's equity is shareholder's equity of the Firm T, which is the accounting acquirer in this example, plus the value of the deal of $7,500, which is the fair value of the shares, if Firm T will issue 150 shares to purchase Firm A.