Presented below are the book values and fair values of the assets and liabilitie
ID: 2431666 • Letter: P
Question
Presented below are the book values and fair values of the assets and liabilities of A, Inc. and B Inc. on Dec 4, 2016, immediately prior to a business combination. The Company is evaluating where A should be the acquirer or if B should be the acquirer.
Axtel, Inc
Barcel, Inc.
Book value
Fair value
Book value
Fair value
Current assets
$ 40,000
$ 100,000
$ 50,000
$ 25,000
PP&E
$ 200,000
$ 400,000
$ 150,000
$ 175,000
Current liabilities
$ 70,000
$ 70,000
$ 30,000
$ 30,000
Common stock
$ 80,000
$ 60,000
Retained earnings
$ 90,000
$ 110,000
Previously unreported identifiable intangibles, capitalized per GAAP are:
A, Inc. $25,000
B, Inc. $20,000
Prepare an accounting memo to address the below issues.
What does the balance sheet of the acquiring firm following each of the following business combinations
A borrows $250,000 on a long-term basis and buys full ownership of B for $250,000 cash. The transaction is recorded as a merger.
Axtel, Inc
Barcel, Inc.
Book value
Fair value
Book value
Fair value
Current assets
$ 40,000
$ 100,000
$ 50,000
$ 25,000
PP&E
$ 200,000
$ 400,000
$ 150,000
$ 175,000
Current liabilities
$ 70,000
$ 70,000
$ 30,000
$ 30,000
Common stock
$ 80,000
$ 60,000
Retained earnings
$ 90,000
$ 110,000
Explanation / Answer
To The Shareholders of A, Net Value of B before acquistion Balance Sheet after Merger of Acquiring Firm Fair Value Amount Current Assets 25,000 Goodwill 60,000 PPE 175,000 Current Assets 125,000 Current Liabilities (30,000) {PPE 575,000 Intangibles 20,000 Current Liabilities 100,000 Net Fair Value 190,000 Loan for Acquistion 250,000 Money Received from A 250,000 Net Assets 410,000 Goodwill generated 60,000 Common Stock 140,000 Retained Earnings 200,000 Revaluation Reserve 70,000 Net Equity 410,000
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