Question

Consider the following premerger information about Firm X and Firm Y: Firm X Firm Y Total earnings $ 86,000 $ 17,500 Shares outstanding 43,000 18,000 Per-share values: Market $ 58 $ 14 Book $ 18 $ 9 Assume that Firm X acquires Firm Y by issuing long-term debt for all the shares outstanding at a merger premium of $7 per share, and that neither firm has any debt before the merger. List the assets of the combined firm assuming the purchase accounting method is used.

Answer 1

Total assets X Y 1,152,000

Step-by-step explanation:

Since both the firms do not have any liability -Book value of equity = Carrying value of assets

Goodwill = Net consideration - Market Value of Assets of Y

Assets from X 18 x 43000 774000

Assets From y 14 x 18000 252000

Goodwill (18000 x (14+7)) - 252000 = 126000

Total assets X Y 1152000