Under the purchase method, the assets and liabilities of the acquired company are combined onto the financial statements of the acquiring company at fair market values on the transaction date.

Steps in the purchase method (note that the process starts with the balance sheet and ends with the income statement):

NOTE: The process of creating a consolidated balance sheet and income statement through the purchase method is time consuming and requires practice.  Candidates are advised to begin by practicing problems with notes and books available and gradually building proficiency to the point of successfully completing the process without assistance.