Question
Coca-Cola Corporation has acquired Pepsi-Cola in a merger transaction. The fixed Assets of Coca-Cola have a market value of 10 Billions, the market values for
Coca-Cola Corporation has acquired Pepsi-Cola in a merger transaction.
The fixed Assets of Coca-Cola have a market value of 10 Billions, the market values for the other assets are the same as book values.
The market value for Pepsi-Cola fixed assets is 400 Billions, the market values for the other assets are the same as book values.
Assume that Coca-Cola issues 800 Billions in new long-term debt to finance the acquisition.
The following balance sheets represent the premerger book values.
Coca-Cola | |||
Current assets | 100 | Current liabilities | 95 |
Other assets | 50 | Long-term debt | 15 |
Net fixed assets | 200 | Equity | 240 |
Total | 350 | 350 | |
|
| ||
Pepsi-Cola | |||
Current assets | 95 | Current liabilities | 80 |
Other assets | 60 | Long-term debt | 300 |
Net fixed assets | 250 | Equity | 25 |
Total | 405 |
| 405 |
Prepare the balance sheet for the new corporation if the merger is treated as a purchase for accounting purposes.
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