Question
The following balance sheets are stated at book value. The fair market value of Red Wings fixed assets is equal to the book value. Predators
The following balance sheets are stated at book value. The fair market value of Red Wings fixed assets is equal to the book value. Predators pay $13,000 for Red Wings and raises the needed funds through an issue of long-term debt. Construct a post-merger balance sheet assuming that Predators purchases Red Wings, and the purchase method of accounting is used.
Predators | |||
Current Assets | $16,000 | Current Liabilities | $4,500 |
Net Fixed Assets | $30,000 | Long-term Debt | $9,500 |
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| Equity | $32,000 |
Total | $46,000 | Total | $46,000 |
Red Wings | |||
Current Assets | $3,000 | Current Liabilities | $1,800 |
Net Fixed Assets | $8,000 | Long-term Debt | $1,200 |
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| Equity | $8,000 |
Total | $11,000 | Total | $11,000 |
Predators | |||
Balance Sheet | |||
Assets | Amount | Equities & Liabilities | Amount |
Current Assets | $19,000 | Current Liabilities | $6,300 |
Net Fixed Assets | $38,000 | Long-term debt | $23,700 |
Goodwill | $5,000 | Equity | $32,000 |
Total | $62,000 |
| $62,000 |
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Purchase consideration | $13,000 |
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Net assets of Red Wings | $8,000 |
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3000+8000-1800-1200 |
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Goodwill | $5,000 |
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Question: In the problem above, suppose the fair market value of Red Wings fixed assets is $13,000 versus the $8,000 book value shown. Predators pay $21,000 for Red Wings and raise the needed funds through an issue of long-term debt. Construct the post-merger balance sheet now, assuming that the purchase method of accounting is used.
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