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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

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

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

Purchase consideration

$13,000

Net assets of Red Wings

$8,000

3000+8000-1800-1200

Goodwill

$5,000

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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