The Financial Accounting Standards Board (FASB) eliminated the use of pooling-of

Question

The Financial Accounting Standards Board (FASB) eliminated the use of pooling-of-interests method for the accounting of mergers occurring after January 1, 2000. Since then, all mergers have been handled as purchases for accounting purposes Consider the following case: Company A buys Company B for $50. The value of Company B's equity (total assets minus its total liabilities) is $40. Which of the following statements best describes the merger's effect on the merged company's consolidated balance sheet? O On the consolidated balance sheet, Company B's common stock value will be written up (recorded) on Company A's books at a value greater than was recorded on Company B's books. O Company B's liabilities will be deducted from Company A's liabilities in the consolidated balance sheet. OOn the consolidated balance sheet, Company B's common stock value will be written down (recorded) on Company A's books at a value lower than was recorded on Company B's books. Two weeks ago, The Glabal Group (G2) and Natural Gas Producers Corp. (NGPC) agreed to a merger in which G2 will purchase NGPC using a stock-for-stock transaction, G2's latest evaluation of the deal expects no synergistic benefits from the merger and has noted that its common stock is currently priced at $s0.00 per share; NGPC's shares are trading for $45.00 per share. G2 has offered a 20% premium over the current price for NGPC's shares. According to the terms of the purchase, the transaction's exchange ratio, which indicates the number of G2 shares that each NGPC shareholder will receive for each share sold, will be Given this information and that which follows, complete the table regarding the G2-NGPC merger Consolidated Financial Data G2 NGPC Balance sheet data Total assets Total liabilities Total equity Income statement data Sales Earnings after taxes Common shares outstanding Additional information Earnings per share Price-to-eanings ratio $22,000,000 9,350,000 12,650,000 $2,000,000 700,000 1,300,000 10,050,000 $70,000,000-$15,000,000 8,400,000 1,200,000 750,000 9,600,000 5,000,000 35.00 True or False: The company with a larger market value in a merger is always the acquirer, and the company with a smaller market value in a merger is the company. target. The merger is expected to create synergistic benefits for the target

Explanation / Answer

The first statement describes the merger effect on the merged company's consolidated balance sheet.

2. 45*1.2=54/50=1.08

Hence exchange ratio is 1.08 shares of G2 for one share of NG PC

The statement mentioned below is false. A company with smaller market cap can also acquire a company with larger market cap.Further acquired company will get Synergy benefit not target company.

Total asset=24000000

Total sales=85000000

common shares o/s=1.08*750000+5000000=5810000.

Eps=9600000/5810000=1.652

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