Purchase Solution

Basic Forms of Acquisitions- Merger. Construct a balance sheet for a new corporation if the merger is treated as a purchase for accounting purposes.

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Vertical Merger-
Company 1 has issued $300,000 in new long-term debt to pay for its purchase (300,000 is the purchase price). Construct a balance sheet for a new corporation if the merger is treated as a purchase for accounting purposes. The balance sheets shown here represent the assets of both firms at their market value. Assume these market values are also the book values.

Company 1

Current assets $400 Current liabilities $200
Other assets 100 Long-term debt 100
Net fixed assets 500 Equity 700
Total $1,000 Total $1,000

Company 2

Current assets $80 Current liabilities $80
Other assets 40 Equity 120
Net Fixed assets 80
Total $200 Total $200

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Solution Summary

Computations are shown in excel for you. No references.

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