Presented below are the book values and fair values of the assets and liabilities of Axtel, Inc. and Barcel, Inc. on October 4, 2016, immediately prior to a business combination.

Previously unreported identifiable intangibles, capitalized per GAAP, are: 

Axtel, Inc. \($25,000 \)

Barcel, Inc. 20,000 

Required

a. Prepare the balance sheet of the acquiring firm following each of the following business combinations: (1) Axtel borrows \($250,000\) on a long-term basis and buys full ownership of Barcel for \($250,000\) cash. The transaction is recorded as a merger. (2) Barcel borrows \($505,000\) on a long-term basis, and buys full ownership of Axtel for \($505,000\) cash. The transaction is recorded as a merger.

b. Comment on how the fair value data for Axtel and Barcel were used in each of the above transactions. Why are total assets reported on the two balance sheets different, even though each transaction results in the union of the same two companies?

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Axtel, Inc. Book Value Fair Value Barcel, Inc. Book Value Fair Value Current assets Property, plant and equipment... Total assets Current liabilities. Common stock. $ 40,000 200,000 $100,000 400,000 $ 50,000 $240,000 150,000 $200,000 $ 25,000 175,000 $ 70,000 $ 70,000 $ 30,000 80,000 Retained earnings 90,000 Total liabilities and equity. $240,000 60,000 110,000 $200,000 $ 30,000