Explore BrainMass

Explore BrainMass

    Merger as a Purchase

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The Lager Brewing Corporation has acquired the Philadelphia Pretzel Company in a vertical merger. Lager Brewing has issued $300,000 in new long-term debt to pay for its purchase. ($300,000 is the purchase price.) Construct the balance sheet for the 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 true market values. Assume these market values are also the book values.

    Balance Sheet
    (in $ thousands)
    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
    Balance Sheet
    (in $ thousands)
    Current assets $ 80 Current liabilities $ 80
    Other assets 40 Equity 120
    Net fixed assets 80
    Total $200 Total $200

    See attached file for full problem description.

    © BrainMass Inc. brainmass.com March 4, 2021, 7:36 pm ad1c9bdddf


    Solution Preview

    Under purchase accounting, all the assets and liabilities of the acquired company will be added to the assets and liabilities of the acquiring company. The difference ...

    Solution Summary

    The solution explains how to prepare a balance sheet treating the merger as a purchase.