uestion S. Silver Enterprises has acquired All Gold Mining in a merger transacti
ID: 2807915 • Letter: U
Question
uestion S. Silver Enterprises has acquired All Gold Mining in a merger transaction. Construct the balance she the new corporation if the merger is treated as a purchase for accounting purposes. The market value of Mining's fixed assets is S5,800; the market vaTuesTor current and other assets are the same as the s. Assume that Silver Enterprises issues $13,800 in new long-term debt to finance the acquisition ing balance sheets represent the premerger book values for both firms: (20 points) Silver Enterprises Current assets $8,600 Current liabilities $5,200 Other assets Net fixed assets 15,800 Equity 1,800 Long-term debt 3,700 17,300 $26,200 Total All Gold Mining Current assets $2,500 Current liabilities $2,300 Total $26,200 Other assets 850 Long-term debt Net fixed assets 5,800 Equity 6,850 $9,150 Total $9150 TotalExplanation / Answer
Computation of the Balance sheet of the new corporation (assuming merger is treated as purchase for accounting purpose):
Silver Enterprises
Amount
Amount
Current assets (8,600+2,500)
$ 11,100
Current liabilities, Note-2
$ 5,200
Other assets (1,800+850)
2,650
Long-term debt (13,800+3,700), note-1
17,500
Net fixed assets (15,800+ 5,800)
21,600
Equity, note-2
17,300
Goodwill, note-3
4,650
Total
$40,000
Total
$40,000
Note-1: Here, it was given that the acquisition is funded by long-term debt, then this represents the post-merger balance sheet will have long-term debt = original long-term debt of Silver’s balance sheet + the new long-term debt issue.
Long term debt, Post-merger = 3,700 + 13,800 = $17,500
Note-2: Acquisition transaction is treated as a purchase for accounting purpose. So all the items in the balance sheet of both companies should be added. Current liabilities and equity will remain the same as the pre-merger balance sheet of the acquiring firm.
Note-3: Goodwill will be created since the acquisition price is greater than the market value.
The Amount of goodwill amount =purchase price - the market value of assets.
Goodwill created = $13,800 – ($9,150 market value Total Assets)
= $4,650
Silver Enterprises
Amount
Amount
Current assets (8,600+2,500)
$ 11,100
Current liabilities, Note-2
$ 5,200
Other assets (1,800+850)
2,650
Long-term debt (13,800+3,700), note-1
17,500
Net fixed assets (15,800+ 5,800)
21,600
Equity, note-2
17,300
Goodwill, note-3
4,650
Total
$40,000
Total
$40,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.