How are Combined Financial Statements treated after an acquisition?

How to answer

Once a deal closes, the seller's financial statements are CONSOLIDATED with the buyer's. The buyer 'absorbs' the seller's assets, liabilities, revenues, and expenses line by line. Specific treatment: (1) Income Statement — full revenue and expenses of the seller are added to the buyer's, plus any synergies (revenue synergies in revenue line, cost synergies as expense reductions); (2) Balance Sheet — assets and liabilities are added at fair value (purchase accounting), with Goodwill plugging the difference between purchase price and net identifiable assets; (3) Cash Flow Statement — combined operating, investing, and financing flows. Inter-company transactions (if buyer and seller previously did business with each other) are eliminated to avoid double-counting. The seller's historical periods PRIOR to close are NOT consolidated — only post-close periods. For modeling purposes, you build a 'pro forma' combined IS for the year of close and going forward, including any new amortization and interest expense from the deal.