Bilge Pumpworks and Seaworthy Rope Company agreed to merge on January 1, 20X3. On the date of the merger agreement, the companies report the following data:

Bilge Pumpworks has 10,000 shares of its \(\$ 20\) par value shares outstanding on January 1, 20X3, and Seaworthy has 4,000 shares of \(\$ 5\) par value stock outstanding. The market values of the shares are \(\$ 300\) and \(\$ 50\), respectively.
\section*{Required}

a. Bilge issues 700 shares of stock in exchange for all the net assets of Seaworthy. Prepare a balance sheet for the combined entity immediately following the merger assuming the acquisition is recorded as a purchase.

b. Prepare the stockholders' equity section of the combined company's balance sheet under purchase treatment assuming Bilge acquires all the net assets of Seaworthy by issuing:
(1) 1,100 shares of common.
(2) 1,800 shares of common.
(3) 3,000 shares of common.

Transcribed Image Text:

Bilge Pumpworks Seaworthy Rope Company Balance Sheet Items Book Value Fair Value Book Value Fair Value Cash and Receivables $ 90.000 Inventory 100,000 $ 90.000 150.000 $ 20.000 $ 20.000 30,000 42.000 Land 100,000 140.000 10.000 15.000 Plant and Equipment 400.000 200.000 Less: Accumulated Depreciation (150,000) 300.000 (80.000) 140.000 Total Assets $540.000 $680.000 $180.000 $217,000 Current Liabilities $ 80.000 $ 80.000 $ 20.000 $ 20.000 Capital Stock 200.000 Capital in Excess of Par Value 20.000 20.000 5.000 Retained Earnings 240,000 135,000 Total Liabilities and Equities $540,000 $180,000