Welcome to Access to Trader, the number one community for those who are committed to taking control of their trading in order to achieve success, profitability, and longevity. Thank you for joining us. Here's Dan Shapiro to help you find your edge, master your process, and own your future. Hey guys, good morning everybody. Welcome to another edition of the AccessToTrader.com weekend update show. Hope everybody's having a great, great weekend. Hope everybody had a really good, strong trading week. Very, very aggressive moves in the market. We'll talk about that in a second. And hey, hopefully you guys are just living your best lives and that's the name of the game, healthy, happy, and always with a smile on your face. So let's talk about the market. Actually, first of all, let's just talk about something that I think a lot of new traders have a really good question. You guys always hear me talking about collecting data, right? And a lot of traders, especially a lot of new traders always ask, well, what are you talking about collecting data? What is this data are we collecting? Is it economic data? What's going on with this data collecting? I truly believe one of the most important parts of trading is gathering information. Information comes several main sources. Technical analysis is obviously gathering data. Any type of political or news events that are being embraced or shunned by the markets is obviously collecting data. Watching options is wonderful. Again, I'm not an options trader. I'm probably one of the most, even though I'm doing this for 20 years, I'm probably, I would say, one of the biggest novice when it comes to options. I know long puts. I know long calls. I know all that good stuff. But I don't know how that stuff works. I don't know what any of that stuff means. Gamma, Shmama, blah, blah. I don't know any of that stuff. I'm an equities guy. But the most important part is you don't need to trade options to gather options, options data. And one of the things I've been doing now for four or five months now is collecting data order flow. So, for example, if I'm watching Tesla, we'll get to that in a second. If I'm watching Tesla and I'm looking for a loan in Tesla, and it's a confirmation channel that's going to confirm or a sneaky channel that's going to confirm it, and then all of a sudden I see a guy come in and bets $1.5 million on Tesla stock with $10 out of the money with three days of expiration. Again, I don't need to be the smartest guy in the world. I don't need to trade options. But I know this guy is putting out a very, very aggressive bet that he believes the stock will explode. So that kind of confirms with my pivots, it's going to give me, it's like holding an extra ace in your hand. You're going to bet aggressively with that order flow. So again, looking at obviously, looking at engaging option order flow is a way to collecting data. Another way of collecting data, and I think this is a very, very important way, is just kind of watching order flow. Especially for your new traders, and I say this all the time, screen time is one of the greatest, greatest vehicles for you to build confidence to be, if you do have an idea of what's going on in the markets, that it's free for you. You don't need to pay anybody to read order flow. You don't need to pay anybody to stare at level two. And the most amazing part is the traders will come back to me and say, well, what is level two? Why is level two important? How do I need level two? And it's like me saying, what do you mean? How do you trade without level two? How do you trade without the total view of the marketplace? How do you trade without seeing all the bids and all the offers that the market participants are giving you more information if there's reload buyers, reload sellers, aggressive buyers, aggressive sellers, all that good stuff? You know, level two is, until I got into social media, I didn't know that people weren't even using level two, had a subscription to level two. Of course you need level two. It's like playing basketball without the rim. It doesn't make sense. Of course you need level two. You can't skim on your business. So by watching the level two, when you're watching a buyer come in and accumulating stock for several days, that is accumulating information.  Your homework and your ability to have an opinion is formulated sometimes over several days. So here's a perfect example, right? So Tesla had this big, big run, right? Huge, huge run this week. Really, really big run, right? In the previous week, you saw a really, really big decline and Tesla's been an absolute phenomenal trader, both ways. Long, short, just both ways, been a phenomenal trader. Again, we have no idea what's going to happen to the stock a year from now, two years from now. But we know because we, again, collect data that, again, there's a phenomenal trading opportunity both ways. And there are really aggressive market participants making bets on both sides of the market, giving it a very, very good high probability directional bet. Okay, so Monday, right? Monday when the stock was trading, I think it was trading like 82, 82, 83, maybe it was Tuesday, 82, 182, 183. You just saw a guy come in with $1.5 million bet on the weekly 185 calls, right? That's collecting data. You know there's a buyer there. So once it started confirming, right? Once it started confirming above this 187 level, you had the confidence, right? You had the ability to understand that the stock has been just down just tremendously over the last several months. And oh, by the way, now it's confirming what I call the birth of the trade, the 10-day moving average. So collecting data is very, very important, right? Incredibly important. And as you started seeing that, you started seeing people follow in the 190s, the 195s, the 200, 205s. It got so aggressive that by the middle of that day, you started seeing guys go out. At that point, there was two separate bets, $1.1 million on the 240s of all things. Then another guy came in, probably the same guy, $1.8 million bet on the July 240s. And for the next two days, you have this really, really big aggressive run to 211, which I believe short term could be a double top. But it's so crucial for new traders, you have to understand that the stock market is not cut and dry. Trading is not cut and dry. It's just not, well, if the stock is breaking out, let's buy the stock. Well, what happened to the stock in the previous days? Why did the stock do what it had to do? Was there any type of evidence that suggests that the stock will go higher besides technical analysis? And a perfect example of that was a trade that we had on Friday on Netflix. So here are the pivots, and you'll only see, there's only four pivots. I took half the day off. I logged off around lunchtime. I celebrated my, I was going to say, 39th birthday. I celebrated my 45th birthday, so I was out for the day. But here's a perfect example, again, collecting data. We were watching Netflix for three days. Okay, three days. And as the market was rallying, it was kind of going sideways. You guys remember, towards the middle of this really, really big rally that saw the indexes up over 4% pretty much on all of them. You started seeing kind of the middle of the week, like Wednesday and Thursday, Amazon did nothing, Netflix did nothing, Alibaba did nothing, NVIDIA did nothing. It was kind of going sideways. But I was watching Netflix, again, I only trade, I pretty much trade the same nine stocks all the time. And they're always in front of me. So I was watching Netflix as the last move of the market, right before we rallied again, started going aggressively down. And there was a guy sitting there at $350,250. He bought $25,000, right? An hour later, okay, an hour later, he came out and he bought another $20,000, $25,000 at like $354,000. And then again, the next day, he was bid at $355,000 and changed for another $20,000. That's called gathering information. That's called collecting data. So I knew once it broke, or at least attempted to break this $359 level, okay, you could see a huge buy in the last three days. Once it broke that $359 level, not only did it give me the confidence via technical analysis, I started checking the check marks, the other check marks to validate how aggressive this trade potentially could be. The reload buyer, right? Reload buyer for two, three consecutive days. And you saw all the beta names wake up at one time. And the ramifications of that was a pretty aggressive trade, right? Really, really aggressive trade. And here's it. I knew technically, right? $359 was a spot and the stock exploded, absolutely exploded. So the moral of the story is guys, I guess, technical analysis, check, check, right? Very, very important. In my opinion is the most important part of collecting data news events. Again, it's how the market reacts. Remember this new traders. It's not the news that's important in the market is how the market reacts. So for example, the China news have been going on for two years, right? Almost two years now.  Market rallies, you got a pessimistic headline. Well, you know, we're not even close to market tanks. And what you saw, for example, last Friday is what we talked about in last weekend's video of are the sellers going to get tired? This market will only start going higher if the sellers go get tired. So again, if you watch last week's video, that's exactly what we're talking about. The sellers potentially getting tired. And not only did the sellers potentially get tired, we got a headline out of left field. Well, now there's a trade talks with Mexico. I don't know, Mexico, we had a problem next Mexico. And what the market did was, was completely negate, absorb, right? And push this tariff Mexican headline completely to the side, right? The same tariff news as China has been kind of sitting over us for two years. But instead this time, again, gathering information, okay, collecting data, we knew the market was sold off for seven straight weeks. We knew the sellers were potentially getting tired. And now the same tariff news that was involved with China is in Mexico. But again, the market got tired. We became numb. We became comfortable. And that's when sellers really, really started to get run over. So again, technical analysis is great guys, but for new traders, again, try to collect the data as much as you can. And the easiest way to do so, and I say this all the time, the easiest way to collect data specifically on individual names is trading individual names. Again, if you want to trade drillers, oil names, get comfortable with a group. You want to trade internet stocks, get comfortable with a group. If you want to trade pot stocks, get comfortable in a group. When you're trading random stocks, it's much harder to collecting data because you're trading the hot stock of the day. You're not trading the stock that you're watching you're familiar with and trading all the time and have some sort of, some sort of reputation with your trading a random stock. So when I'm watching Tesla, I watch Tesla every day, long, short, sideways, doesn't make a difference. When I watch Netflix and I see order flow coming in, again, I'm comfortable with the stock because I traded every single day. So my tip to you guys, not only, first of all, get level two for all you guys who are still sitting and saying, well, do I need level two? Yeah, you need level two. Again, it's like playing basketball without a rim. You need level two. You need to see all the aggregated orders. You need to see who's buying, who's selling. Again, that's not going to tell you the directional bias, but at least it'll give you another opinion, another piece of the puzzle to collect to try to confirm your thesis and put on the trade correctly. So let's talk about this week. Again, monster, monster views and moves and all that good stuff in the indexes. All the index is pretty much over 4% to the upside. Not only did the Nasdaq 100 reclaim the 50 and reclaimed 100 and the 200 day moving average. In two sessions, it reclaimed the five, which is again very, very important to me. It gives me short term sentiment. It confirmed the 10, confirmed the 100 AMA and now we are on our way to this 183 potential measure potential on the QQQs. And again, the news that came out after all over the weekend was that apparently we've, there's some sort of resolution, right? Some sort of resolution with Mexico. Was Mexico really a problem, right? I mean, Mexico was like a, was it really an issue? I mean, the headline came out Friday that they absorbed and negated the headline from Monday to Friday. So is this really going to be the market a gaping up with the 300 points? Maybe it will, right? Maybe it will. And if you are along with the weekend, God bless. I'm flat over the weekend. Unfortunately, I don't have a position. But at the same time, you know, again, it was Mexico really worth it and, you know, worth it to put even a headline that something got resolved that it was an issue for like 15 minutes. So look, can it be one of those, you know, gap and crap scenario after tests and gaps up to the 50 day moving average? It has to be on the table because again, technical analysis trumps everything on no pun intended or maybe pun is intended. But again, if we do gap up into this 183, 40s level, you know, it could be a very, very, you know, significant sign or reversal could be coming at least for the day. Again, nobody's saying we're going back to the lows and still until we start losing back this 174 level of 200 day moving average. I don't want to hear about we're going back to the lows. Maybe we will, maybe we won't. But again, it's baby steps.  The baby first of all needs to learn how to hold up its neck and then learn to sit up and learn how to crawl. And then the baby starts walking. So before anybody has a macro opinion, well, we're going to all time highs. Maybe we will, maybe we won't. Oh no, this is a dead cat bounce. Maybe it is, maybe it isn't. But again, don't have an opinion based on what you want to see. Okay. And you read in the newspapers, have an opinion based on technical analysis. So far, so good, really aggressive rally. Let's see what happens. I think that's the best way of saying it. Let's see what happens. If the futures are significant enough to push the QQQs into the 183, 40s level, and let's see what happens. If the bears defend that level, then yes, it will be a, you know, will be a shorter term top, maybe a day or so, whatever the case may be. But again, I'm not a bull. I'm not a bear. I'm a realist. I'm an opportunist. I trade reality. So really strongly, right? Really, really strong week buyers everywhere. Okay. And last week, again, just kind of touch on it. Last week in the video, we talked about the only way. Okay. And I said this, and I said this pretty clearly, the only way the market was going to stop going down and it sounded funny at the time. That's the truth. If the sellers got tired, okay? If the sellers got comfortable, the sellers got tired and they just had no energy left. Again, it's like, you know, you're training for a marathon, okay? You're training for a marathon and you run, you know, 26 miles, right? You just ran that 26 miles. The marathon is over. And then you realize you have another mini marathon three days from now. You're going to be tired even though, again, you're in that directional bias. You're prepared. Everything is going for you, but you're tired. All right, sellers get exactly the same way. We went down for seven weeks, okay? Almost seven weeks in all the indexes. It was very highly probable that a dead cab balance doesn't happen. Again, nobody thought four, four and a half percent, okay? But again, it was highly probable. So if you were shorting the market, okay? Maybe not talking about individual stocks, but if you were shorting the market after the Mexican news kind of got brushed off to the side on Monday, okay? And you had conviction, well, what were you doing the previous seven weeks? Right? It's a fair question. Like what were you doing the previous seven weeks? Again, nobody's saying you're not going to be right or wrong long term, but the common sense is, well, the market's down seven weeks in a row, okay? This is the first sign of life. This news has been kind of over our heads for like 30 seconds and being sarcastic on the Mexican news, right? That's being negated. Why am I short? Right? Why am I short? Sometimes, again, technical analysis is skewed by common sense and you have to kind of take a step back and say, well, wait a minute, market's down seven weeks in a row, Amazon's down like 150 points in like a week, okay? Two weeks. Well, why am I being short to stock? And if you sometimes take a step back and really ask these things out loud and you actually hear them, you kind of start to chuck when you realize that sometimes you're just wrong, right? You're just wrong in your thinking. And before it becomes a monetary problem, you got to take a step back and really look at the market from common sense. So big, big rally, big, big rally. I hope everybody did well. Very, very aggressive moves. Tesla was a monster. Amazon was just ridiculous, okay?   I caught it on Monday. I caught it on Monday, and it took like three days of doing absolutely nothing. I finally caught it on Friday. So that was good.  Talk about, again, mirroring the market, right? So the semiconductors have been just murdered.  And you can see it pretty much a mirror image of the NASDAQ 100, the Dow Jones and the Schwarz. Again, they had the most exposure, right? They, you know, arguably they have the most exposure to China because they all make chips there, right? So eventually, again, nothing materialistically changed from Monday, right? For, excuse me, from Tuesday, then it was for the last couple of months. But again, sellers got tired. And again, once they reclaimed the 10-day moving average, that was kind of a green light for the rest of the market and very, very strong sessions. So going into this week, again, you have to a little bit, a little bit. I'm still, I don't want to use the word bulge. For me, I think the word bull and bear is kind of like 10 years ago, okay? Any time that, and first of all, the market has been going out for several weeks, okay? There's been plenty of opportunity for people to chase stock. And when you see people chasing stocks, how can you turn around and say, well, there's still a bear market. There could be a bear interval. There could be a sell-by. But I think the word bear market and bull market, old school, right? It's like bell bottoms, right? Old school.  Anyway, right? Old school. So I think most important going into this week, you have to be bullish bias, right? Buy bias. But again, there will be opportunities on the sell side and we'll talk about that in a second that I think we can take advantage of. So going into this week, this is the most important part to see on the Nasdaq 100. The reason why I emphasize the Nasdaq 100, it's the stocks that I trade. I trade pretty much all the names in the Nasdaq 100. I don't care about the downs, 30 stocks. I don't care about the IWM that's represented the majority by retail. I care about the Nasdaq 100 because, again, Amazon, Google, Facebook, Alibaba, Tesla, Netflix, all that good stuff I trade. So this represents my comfort zone. It doesn't mean yours. My comfort zone. So this is what I talk about. So the day of reckoning, at least for the short term, will be this 18340s level for the Nasdaq 100 bulls. You can reclaim that level. That's great. If the bears kind of reject them and give them the Barry Sanders stiff arm, right, then we will start rolling back around. But again, before anybody talks about destruction of price per share, all we are talking about is for potential back to this 180, maybe to this 177 level before the bulls need to take another stand. So again, this is the level we are watching. In case we don't gap up for whatever reason, yeah, there's a measure potential to 183, so trade your stocks accordingly. Very, very good solid week.  I can't figure out why. Again, I kind of in my mind have an opinion why maybe because, again, there is no fear in the market and people are making speculative bets because of the options market. Sometimes they will dictate higher price stocks or lower price stocks. But Fridays have been really, really good and all these wives tell about summer trading slow and all that stuff is slow. Again, it all depends what you trade. I trade beta. These things have the biggest ranges. It doesn't make a difference to me if it's summer, spring, fall, Easter, Flag Day, Groundhogs Day, they're all going to give you value because of their average shoe range. And again, these are the four names that triggered right at the open, right at the open, and they were huge. So Netflix, Netflix, I only took two trades on Friday. Netflix, I took it to the upside and then I tried to bounce Tesla that only put up like a 30, 40-some bounce. I got broke even on that. And then I just left for the day. I celebrated my sweet 16 allegedly. So yeah, 45 years old, man. Anyway, yeah, so Netflix is huge, huge buyer for the last three days. Again, going back to the collection of data, 359 needs to reclaim. Again, here was Netflix. Here was the 359, right? Here was the 359 right here, all this whole channel here going back to the fifth. So you have three days of collecting data, and once it broke 359, absolutely exploded. I told everybody in the live webinar it should get to 65. Why 65? Because 65 was the upper Bollinger Band. Look where it got rejected perfectly. So this is obviously going to be the line in the sand going forward. And then Square went nuts. Square went absolutely nuts. Congratulations for you guys who got Square. Needs to reclaim. Needs to reclaim 66, the pre-market high, 66 and a quarter. So it has to confirm. If you look at Square, I love that daily coming in. The daily chart again was this 65, 64, 65, 87. And once it confirmed the pre-market highs right here, 26, 25, 30 just absolutely exploded. Went to 69. It's a huge, huge move there. ZM, talk about a big move, man. ZM was up a lot on earnings. And 92.50 was right around the pre-market high. There was a sitting there consolidating. So we knew once it started to build over the 92 and a quarter, it had a shot for a really, really big move. Again, nobody thought it was going to go up another $78. But hell, here's the 92. Excuse me. Here was the 92.50, right? Here's the 92.50 and just absolutely exploded. Really, really exploded. Went to almost 99. And Boeing. Again, not the biggest move. Again, congratulations you guys who did catch Boeing. Here was the Boeing right here. We talked about 50, what was it? 50, what was the spot we talked about? Hold on, hold on. 53, 75, 54, 53, 75, 54. Yeah, so 53, 75, where was it? 53, 75, 54. And it went to like 55 and a quarter, which I kind of like for Monday. It's not on our, it's not on our watch list for Monday. I kind of like it. We'll talk about it. I kind of like it if it confirms this upper linear regression line. So good moves there. I mean, really, really good moves there. Again, when you guys don't see, if all you guys who are on the Twitter feed or the StockTwits feed, what you guys don't see are these bounce plays that we play every single day. And I tweeted something out.  So I tweeted out, let me just show you the stock to its feed. So I tweeted out on BYND, right? BYND had a really, really big move on earnings. Again, it really does show the, you know, the potential of how Wall Street loves paying for potential. Okay. Growth stories, they love all that good stuff. And I wrote here and you can see what happened to the stock after. And this is why it's so important guys. Again, we play a lot of these bounce plays and rejection plays in the live webinar that I don't put on the Twitter feed. But it's so important to understand where emotional sellers meet technical buyers and where technical sellers meet emotional buyers. And here's a perfect example. I tweeted this out and I go, hey, for all you guys who are on BYND, and I didn't trade this at all on Friday. I said, hey, 127, these rise in support. Okay. It was rise in support in the 60 minute. Let's see if the shorts get trapped and the stock sees new highs and it trapped them perfectly on the bottom of the channel. And, you know, obviously you see that since the post stock ran up, but it was actually about more, probably $15, $16. But the point is, it's so important guys to understand, even if you don't trade pivots, there's nothing to do with pivots, there's nothing to do about trading with me. But the point is, if you don't know where supply and demand zones are, you're trading blind. If you think level two is a problem, you have an issue with level two, try to buy a stock into supply and see what happens. Try to sell a stock or get short into a stock into a rising demand zone. Right. And you will see exactly where the biggest problem is. So again, nothing to do about pivots. It's just basic technical analysis. So let's get, let me give you guys some ideas for a Monday session. I love Tesla short or long, but short. So let me tell you why. So 2-11, right, 2-11, it got rejected, 2-11, 2-11 here. Right guys, everybody see that? 2-11, 2-11. So if the stock really wakes up on Monday, right, and it breaks 2-11, obviously I'm going to be long, right? That is the line of the sand. There's no room, again, there's no room for interpretation. 2-11 is the high here, 2-11 is the high here. So if it breaks the 2-11, I think the stock has a chance to go higher. Again, remember those bets were pretty aggressive. Some bets came in 2-17-50. Some bets came in the 2-40 July calls. But, but what I've seen now over the last 24 hours is getting rejected off this daily supply. So if it starts building and confirms this bottom channel here, I think there's a shot. If it starts confirming that bottom channel, I think there's a shot. It gets back to the five-day moving average, which is roughly around between 1.95 and 1.92. I am sell biased, but again, I won't have any reservation or have any problem switching my ground and start taking it back above the 2-11, but we are watching it to the downside on a sneaky channel to the short side in case it gets confirmed. So let's keep an eye on that. I like Facebook. Okay, I like Facebook. Facebook reclaimed. Again, a lot of issues, the antitrust issues, all that good stuff. If Facebook can start building, you can see by the 60-minute view, if Facebook can start building above the 174 area, I think it has a shot. I think it has a shot, again, contingent if the market continues to rally. So I like that. Let me see what else I want to talk to you guys about. Let me give you guys some other ideas here. I like this OUT. I forgot, I think it was a see from the live webinar who mentioned that. I like it. I've never even heard about the stock, but it looks pretty good, right? OUT looks pretty good. It starts building over 26, pretty bare bones pattern. You don't need to be a really professional trader to figure out this is a pretty good-looking pattern. So that looks good as well. I like BYND on dips, any dip, obviously, any dip at all, any dip into rising support. If the market opened up now, obviously 128 would be a rising support. Obviously, this is going to move around tomorrow. So all you guys who are in the live webinar, please get there at bright and early at 9 o'clock. I like BYND into dips. I like ZM into dips as well. I like that as well. I kind of like Pinterest, right? They didn't have a great earnings report. So the stock paid for it. And you can see it stopped right on supply, right? It stopped right on supply here on this linear regression line. If it starts reclaiming, right, that one, you know, let's say 128, the 28 level, right? It starts reclaiming that 28 level. Maybe it wakes up and has another run to 30. So pretty good ideas then. I think that's about it, what I want to share with you guys. Everything else is beta-related that I kind of want to see how it opens up. So for all you guys who are joining us in the live webinar tomorrow, please get there around 9 o'clock. You can't roll in three minutes to the open and say, well, what are we looking at? I mean, I speak 25 minutes prior to the open to kind of get everybody set up. So please get there bright and early. And for all you guys who are joining us on the live Twitter feed, we start putting in these pivots around 9 o'clock and 9 o'clock to get you set up for the day.  And God's help, we'll see you all in the field tomorrow. Check it out, guys. Congratulations for putting in the time to take control of your trading. You're one step closer to owning your future and achieving the success you desire. Want daily trade ideas directly from Dan? Straight off his personal watch list? Unlock our free PS60 vault where you'll get nightly updates on pivot opportunities we're watching for the next day's session. Click the link in the description to get started today.


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Hello and welcome to this session in which we would look at the acquisition method when one company purchase another company Specifically in this session, we're gonna be assuming that each company is going to retain its own separate accounting record And the reason I am emphasizing this point because in the prior session we looked at acquisition or combination Where the company that's being acquired dissolved and it's gone. So this is a one-time event versus When each company maintain its own separate record, we're gonna be using Worksheets and now we're introducing the idea the important idea of a worksheet when we when we do consolidation when we combine two companies We are still going to be using the fair value method Valuing everything at fair value when we do this Combination when we do this consolidation process that each company would retain its own record now If you want to take a look at the prior session when the solution takes place I would say this is easier again because it happens how many times once it happens once and we're done We bring older assets will bring older liabilities on the books to our books and life will go on This topic is extremely important.  I don't replace your CPA review course You can keep your course. I am a useful addition. I can explain the material differently I can show you how to approach the questions differently I can provide you alternative resources to help you along your CPA review course So your risk to try me is one month of subscription your potential gain is passing the exam Are you willing to take that risk to pass the exam? That's all you have to do try me for a month And if not for anything take a look at my website to find out how well or not while your university doing on the CPA exam I do have resources for other courses as well Please connect with me only then if you haven't done so like this recording share it with other connect with me on Instagram Facebook Twitter and Reddit now to illustrate this concept I'm going to go to an Excel sheet and show you the same example that we work in the prior example So if you haven't looked at the prior example, that's fine But if it's helpful if you look at the prior data, so this is the example we're gonna we're going to be working with we have So this is the example we're gonna be working with we have the buyer company and the seller company the buyer Company is buying the seller company is buying them And here are the book value for the purchaser and the book value for the seller Now we're gonna be using the fair value measurement Therefore we measure everything that we're buying at fair value for example just a review their current assets They have 300,000 the book value the fair value is also 300,000 they have computer and equipment of 400,000 It's worth 600,000. They have capitalized software of 100,000. It's worth way more 1.2 million Under books they don't have they have a customer contract that they did not record because they cannot record the customer contract We think it's worth 700,000 their liabilities are worth 200,000 well the fair value of the liabilities if we have to pay it 250 okay, so notice Their net asset or net equity at fair value is two million five hundred and fifty thousand now We're gonna buy this company and what's the deal? Here's the deal. We are going to issue 26,000 shares at one hundred dollar per share. So this is two point six million dollar We're gonna be paying and we're gonna be pay professional fee of forty thousand for arranging the deal remember if we have any brokerage fee that's gonna be Account for it separately is an expense. So this is basically this is an expense This is not part of the deal and guess what in this deal. We're gonna be dealing with a contingent clause What is a contingent clause a contingent clause occur when the buyer and the seller they disagree on the fair value? So remember these these fair values are basically an estimate estimate But there's gonna be a disagreement to resolve this is disagreement to kind of reduce the uncertainty the buyer would say look Look if we if we can earn a certain amount of money Okay, basically if we if we can earn that much money will pay you extra and here's the deal Here's the contingent clause. We're gonna pay eighty three thousand two hundred more to the shareholders Okay, in addition to this two point six million if the seller earnings exceed three hundred thousand for year one So simply put if you can earn more than three hundred thousand guess what we owe you an additional eighty three thousand Now this is basically a contingent liability. How do we record this contingent liability? We have to Estimate what is the probability of that happening? We're gonna assume it's 25 percent of that happening 25% chance also since we are responsible for paying this liability a year from now We're gonna discount it and we're gonna assume the discount rate is 4% So when we discount this liability eighty three thousand two hundred times point two five of chance happening times point nine nine Six one five three eight. This is the time value of money one year at 4% now if you don't know the time value of money Then you should go into my intermediate accounting and learn about the time value of money And what we come up with when we this this this when we compute these numbers We come up with a contingent liability of 20,000 simply put this is a new liability. Guess what? Let's go ahead and Record the purchase. So how much are we going to pay for this purchase? How what's the consideration giving for this problem? Well the consideration giving is two million two two two million 620 which is the stocks Plus the contingent liability that we are responsible. Let's go ahead and journalize this entry because we need to journalize the entry So basically we are going to debit an investment in the seller company Two million six hundred and twenty. We're gonna record a liability and we issued the stocks Remember common stock is the number of shares times the par value we're showing twenty six stop twenty six thousand shares The par value is ten dollars, which is giving in the right here. The par value is ten dollars And the remaining is additional paid in capital now what we have to do immediately now We have an investment on the parents book a contingent liability We have to increase our common stock common stock used to be Common stock used to be one point six million. This is a credit balance not a negative now We're gonna have to add to it two hundred and sixty thousand and we have to increase to our paid in capital So let me show you how things looks like after we complete this First we have to put the investment on the books now on the parent company on the big company big company books We have a new account called an investment account also our We have a new account called contingent liability. Also, this is on the parents book And our common stock went from one point six million and we added to it the new stocks that we issued also additional paid in capital went from forty thousand and we added to it the Two million three hundred and forty so it's three two million three hundred and forty So what I'm trying to show you is those accounts common stock Has been updated and additional paid in capital has been updated after we issue the stocks now We also paid forty thousand to arrange the fee while the forty thousand is an expense We debit an expense we credit cash and basically cash comes out of retain comes out of current assets Therefore, we used to have one million one hundred thousand We're gonna reduce cash by current assets, which is cash by forty thousand Just so those are the figures that you need to be aware of because when you go when we go to the consolidated balance sheet You're gonna see different figures. I want you to understand why we did this. Okay, so the first thing we do is we record the Record the purchase. How much did we pay for the asset? Go ahead and record the purchase. That's fine. We did this Okay, now what what are we going to do next after we record the purchase? We're gonna have to allocate We're gonna have to allocate because we paid more than the book value of this company The book value is two million five hundred and fifty. We paid more. So now we're gonna have to allocate The extra for the fair value of the asset. What we have to do first is find the difference What is the difference is what is the difference in the assets and liabilities that we purchase because this is what we have to record the Current assets are the same. There's no difference We have a computer undervalued by two hundred thousand We have kept capitalized software undervalued by one point one million and we have Customer contract undervalued and we have no stable. That's undervalued. Now. What's gonna happen is this we're gonna have to allocate the extra so Let's start with this process We paid two million six hundred and twenty for a company that's worth on the books on the books notice on the books It's worth only six hundred thousand. Therefore, we paid extra We paid extra of two million two million and twenty thousand That's how much we paid extra. That's the difference now. What are we gonna do? Well, we already know that certain assets are undervalued. For example, their computer equipment is undervalued by two hundred thousand So what are we going to do? We're gonna allocate of this amount two hundred thousand to the computer equipment same thing with The capitalized software. We're gonna allocate to that one million one hundred thousand customer contract are undervalued by seven hundred thousand and Their liabilities are undervalued by fifty thousand. So after we allocate this two million The basically we're gonna take this difference and allocate this difference to those assets and liabilities We're gonna have a remaining balance a few if you go ahead and allocate the difference We're gonna have a remaining balance of guess what seventy thousand. What do we call any? Unexplained or any remaining balance after we allocate all this you you guessed it. We're gonna call it We're gonna record it as goodwill because we have to record this additional 70,000 so basically you take a picture of this or write these numbers down because when we go to the worksheet to show you how this all work We have 70,000 of goodwill on the on the worksheet. So, you know what it's coming from So let's go to the worksheet to start this consolidation Process because this is important. So after we allocate we can start the consolidation process. So here's what we have This is a worksheet. We have We have let me make it a little bit smaller. Okay, this is Better we have all the accounts first We have the income statement accounts for big and small and remember we don't have any income statement account for small because remember What I told you we purchased this company December 31st by that time the last day of the year They don't have revenues and expenses because they close them and the reason we did this is to keep it simple Don't don't worry. We're gonna have those income statement account consolidation in future Sessions retained earning the same thing. We don't have anything because everything is closed out Everything is closed out to retained earnings or simply put the retained earnings. It Includes everything that we need to that we need to have We have current assets for the big company current assets for small company and we don't have any adjustments. So let's start the Should let's do the journal entries first basically, let's do the journal entries first So what do we have to do when we do consolidation the few things that we need to be aware of Okay, we have to eliminate we have to eliminate the Company that we purchased equity accounts. So basically come and stock additional paid-in capital in retained earnings This is one of the steps we have to complete those has to be gone because the only equity account that survive That survive under the consolidated total is The is the parent company but before we do that, let me just go through the income statement and retained earnings. Let me Show you this. So basically we have big company 1 million small company. They have no revenue. We have no adjustments Therefore the consolidated revenue is a million. We have big company 840,000 no small company expenses no adjustments total expenses consolidated 840 Consolidated net income is 160 we're gonna do same thing through the retained earnings net income and declared dividend because we don't have anything for the small company It's all has been closed out. So this is all what's surviving now Let's go ahead and start with the balance sheet. The balance sheet is We're gonna have 1 million and 60,000 as of the beginning balance for current assets And I'm just gonna go through this plus 300,000 Therefore the consolidated current assets is 1,000,360 now the investment account cannot The investment account has to be go down to zero because when we consolidate we're gonna bring everything We're gonna consolidate the big and the small and the investment account What why did we use the investment account? We this investment account represent the equity of the other business the equity of the other business means This is the equity of the other business the 100,000 the 20,000 in the 40 therefore what we have to do We have to eliminate so part of the elimination process Basically, we have to eliminate the stockholders equity of the subsidiary. So they have a credit balance What do we have to do? We're gonna have to debit them. So I'm gonna debit common stock 100,000 I'm gonna debit Additional paid in capital 20,000 I'm gonna debit retained earning 480,000 I have to eliminate those and where do I eliminate them against those they equal to if I add them up the equal to 600,000 and I'm gonna go ahead and Credit my investment account. I'm gonna credit investment account 600,000 so this is the first the journal entry. Let me put it and maybe in a different yellow. So this is the well Let me do it in a different color This is the first journal entry consolidate the journal entry and notice what's gonna happen here when I take this is The the green is a debit and the yellow is a credit. So when I take the debit Take the difference between the debit and the credit. They should equal to zero So I should so they should eat the the subsidiary balance that should equal to zero now all what survive simply put all What survive is the equity of the business the equity of the main company. Okay, so simply put Let me do it. Let me do it from the beginning. So I have common stock of 1,000,000 860 Well, I'm gonna bring it here because there's no adjustment for that. I have common stock of a Power value common stock for the subsidiary for 100,000 and 100,000 plus 100,000 minus it's gonna give me zero. I have additional paid-in capital to 2,000,380,000 I'm gonna add the 20,000 from the subsidiaries then remove 20,000 from the subsidiary simply put if I take this plus this Minus this minus those three numbers together. I'm gonna only end up. Sorry. I made a an error here Formula error. So basically all what's gonna survive is the 2,000,380 the additional paid-in capital for the parent company So basically the sub the sub common stock is gone the sub additional pay this capital is gone and Same thing with retained earning. I will take my retained earning plus the retained earning minus the adjustment And that's gonna give me only 920,000 so simply put notice the stock the owner's equity accounts, which is common stock Additional paid-in capital and retained earning the only one that survive is the parents So this is one of the things you should be also always looking for and on the exam They try to trick you. What should be the on the consolidated the Balance sheet at the subsidiaries equity account and they would list always zero on the consolidated balance sheet Why because we're gonna close them to the investment account. So that's that's done Now I'm not gonna close the investment account yet because I need to also close the investment account And the reason is I need to close it because when I purchase the other companies I purchased their asset I cannot keep my investment account and purchase their asset. So what I'm gonna do now Simply put what's gonna happen is this Of the two million two two million and twenty thousand. I'm sorry I paid an extra look of the two million of the two million of the two million six hundred and twenty I I Bought their equity six hundred thousand already took care of this now I need I still have two million and twenty thousand that I have to allocate to those assets Now what I'm gonna do I'm gonna have to allocate to those other assets in other words I'm gonna have to debit the additional assets the amount that they require So they are at fair value starting with the computer equipment the computer equipment We said it's undervalued by two hundred thousand. So I'm gonna go ahead now I have computer equipment one point three million the book value of their computer equipment four hundred thousand I'm gonna debit notice. This is a debit. I'm gonna debit an additional 200,000 to reflect the fair value so the computer equipment and the consolidated on the consolidated total should be one point nine million Same thing with the capitalized software. I have capitalized software of half a million They have capitalized software of one million, but what we find out is they also have Their capitalized software is worth an additional 1,000,000 100,000 Let me do the put the commons here therefore What I'm gonna do I'm gonna take my capitalized software add their capitalized book value software then add The fair value therefore on the consolidated balance sheet. We have capitalized software of one point seven million. So this is the second debit Now customer contract. I have no customer contract. They had zero customer contract But when we bought them we know that they have they should have seven hundred thousand of customer contract Therefore, I have to add this debit and that's basically zero plus zero plus seven hundred thousand equal to seven hundred thousand So under on the consolidated balance sheet. We have seven hundred thousand worth of worth of Worth of customer contract on all what I'm doing is all what I'm doing is I'm taking dose the two hundred thousand I accounted for the one point one the seven hundred thousand. I still have the notes payable and the goodwill Let me go ahead and record the goodwill. We did not have goodwill earlier now We're gonna have a goodwill of fifty thousand So I'm gonna have a goodwill of fifty thousand on the consolidated Balance sheet. This is my goodwill of fifty. I'm sorry not fifty seventy thousand The Consolidate the goodwill is seventy thousand That's seventy thousand So now let's take a look at their notes payable their notes payable. I have three hundred thousand of notes payable I mean the parent company or big company small company has two hundred thousand then I'm gonna have to add fifty thousand of Liabilities, okay, fifty thousand of liabilities. Why because their liabilities are worth More than what's on the books. Therefore what I'm gonna do. I'm gonna add all the notes payable and the adjustment and overall we have liabilities of five hundred and fifty thousand contingent liability. We have now a contingent liability of Twenty twenty thousand remember. The reason is negative is to show it's a credit. I Accounted for stockholders equity. Let's see if total assets equal to stop total stockholders equity. So let me That's it. Let me see this. I don't think it's gonna I'm gonna I'm gonna show you what's missing But let me copy it first and just have the formula here So formula is five million seven hundred and thirty thousand now. Well The reason is because the investment account is zero Okay, the info for the investment account to be zero. I'm missing a credit So now the investment account. Let me show you that now it does not balance until I do the credit So if I take two million six hundred and twenty minus the credit This is not gonna balance now now it doesn't balance So what I have to do all the debits that I have all the debits that I have minus the Fifty thousand credit the adjustment is two million two hundred thousand remember. I have to reduce my investment account by two million Two hundred thousand. Let me now Minus the two million the other credit for the investment now. It's equal now. They oops minus it. What did I do? Okay, so it's This account minus 600,000 minus two million and 20,000 maybe I have too many zeros. Let me just check my zeros here Okay There we go. All right two million two hundred thousand therefore the second entry So I'm gonna put this in a different color the highlight in a different color. I'm gonna highlight in maybe light blue Okay, so this is the Second entry. This is the second entry. I debit the accounts the assets. I debit the assets and I credit the investment to bring the investment down to zero and I put the liabilities on the books Therefore at the end of the consolidation notice now they equal to each other Remember the investment account has to zero down. I'm good. This is one check you can do the equity account on the equity account that survive as the parent company, which is what the one million eight hundred sixty check 2 million 380 checked and the 920. Okay, why because the the I eliminated the subsidiaries Equity because they don't appear on the consolidated Then I take my investment account and allocate the investment account to the various assets and liabilities and my investment account should go That should go down to zero. I would say this is a simple process. The reason I say this is I would say a basic or Baby steps. Why because we did not have any income statement to worry about or Statements of retained earning but again, the reason is this is a starting point because this is the first time we're doing this So I'm gonna do this step by step. This is the mechanics for the For the entries now remember those are actual entries So but entries those entries are on the worksheet. Okay? In other words, you're gonna have to debit debit debit debit common stock for the subsidiaries debit additional paid in capital debit retained earning and credit investment That's that's one entry Just make sure you know this. I just have them here as debits and credits and those are These entries. Where do they go? They go on the worksheet basically on the side. We take care of them. Why because we keep each company's Separate at the end of the day each company separate So we do those consolidated entries to prepare the consolidated Financial statements again at the end of this recording. I would like to remind you worksheet is an important topic on the CPA exam Okay, again, I don't replace your CPA review course. I can be useful edition. I can teach you this give me a chance That's all what I'm gonna tell you if you want an alternative explanation backup explanation because your CPA review course may assume You know this I teach you this from scratch. Good luck study hard and of course stay safe