The balance sheets of Stanford Corporation and Boulder Corporation appear below.

Question

The balance sheets of Stanford Corporation and Boulder Corporation appear below. Stanford Corporation has 100,000 shares of stock outstanding and Boulder Corporation has 50,000 shares of stock outstanding. Stanford Corporation acquires Boulder Corporation by issuing one new share of Stanford for each four shares of Boulder. Below is the balance sheet of the combined companies as it would appear after the merger.

The combined shares outstanding are now 112,500. How is that calculated.

Stanford Boulder Combined Current Assets $ 1,000,000 $   200,000 $ 1,200,000 Fixed Asets $ 2,000,000 $   500,000 $ 2,500,000 Total Assets $ 3,000,000 $   700,000 $ 3,700,000 Current Liabilities $     500,000 $   100,000 $     600,000 Long-term debt $ 1,000,000 $   300,000 $ 1,300,000 Equity $ 1,500,000 $   300,000 $ 1,800,000 Total Liab. & Equity $ 3,000,000 $   700,000 $ 3,700,000 Shares Outstanding 100,000 50,000 112,500

Explanation / Answer

Stanford's total no. of shares before aquisition = 1,00,000

Stanford's new no.of shares issued to Boulder on its aquisition(1 share for every 4 shares of Boulder) = 50,000/4*1 = 12,500

Total No. of shares after aquisition = 112,500

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