Balance Sheets for Mergers: Silver Enterprises has acquired All Gold Mining in a
ID: 2807383 • Letter: B
Question
Balance Sheets for Mergers:
Silver Enterprises has acquired All Gold Mining in a merger transaction. Construct the balance sheet for the new corporation if the merger is treated as a purchase of interests for accounting purposes. The following balance sheets represents the premerger book values for both firms.
Silver Enterprises
Current assets $ 5,300 Current liabilities $ 3,100
Other assets 1,500 Long-term debt 7,800
Net fixed assets 17,900 Equity 13,800
Total $24,700 Total $24,700
All Gold Mining
Current assets $ 1,400 Current liabilities $ 1,460
Other assets 570 Long-term debt 0
Net fixed assets 7,400 Equity 7,910
Total $ 9,370 Total $ 9,370
The market value of All Gold Mining’s fixed assets is $9,100; the market value for current and other assets are the same as the book values. Assume that Silver Enterprises issues $15,000 in new long-term debt to finance the acquisition.
Explanation / Answer
Silver Enterprises Goodwill will be created since the acquisition price is greater than the book value. The goodwill amount is equal to the purchase price minus the market value of assets, plus the market value of the acquired company's debt. Goodwill = $15,000 - ($9,100 market value FA) - ($1,400 market value of CA) - ($570 market value OA) + ($1,460 current liabilities) = $5,390
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