Question

Silver Enterprises has acquired All Gold Mining in a merger transaction. The following balance sheets represent the pre-merger book values for both firms:  

Silver Enterprises
Current Assets                                                     8,600	Current Liabilities                                                5,200
Other Assets                                                        1,800	Long-Term Debt                                                  3,700
Net Fixed Assets 15,800	Equity                                                                  17,300
Total                                                                   26,200	Total                                                                    26,200

All Gold Mining
Current Assets                                                     2,500	Current Liabilities                                                2,300
Other Assets 850	Long-Term Debt                                                          0
Net Fixed Assets                                                 5,800	Equity                                                                    6,850
Total                                                                     9,150	Total                                                                      9,150

Construct the balance sheet for the new corporation using the acquisition method. The market value of All Gold Mining's fixed assets is $5,800; the market values for current and other assets are the same as the book values. Assume that Silver Enterprises issues $10,500 in new long-term debt to finance the acquisition.

Answer 1

Ans. Balance Sheet:

Balance sheet is a financial statement which lists the assets, equity and liability that company poses at a particular period of time. The asset is equal to the liability and equity.

Silver Enterprises, post-merger
Current assets	$11,100	Current liabilities	$7,500
Other assets	$2,650	Long-term debt	$14,200
Net fixed assets	$21,600	Equity	$17,300
Goodwill (Bal.fig)	$3,650
Total	$39,000	Total	$39,000

Working Notes:

1. Current assets=Silver Enterprises current assets + All Gold mining current assets

Current assets=$8,600 + $2,500

Current assets=$11,100

2. Other assets= Silver Enterprises other assets + All Gold mining other assets

Other assets=$1,800+$850

Other assets=$2,650

3. Net fixed assets=Silver Enterprises net fixed assets + Market value All Gold mining net fixed assets

Net fixed assets=$15,800 + $5,800

Net fixed assets=$21,600

4. Current liabilities=  Silver Enterprises current liabilities + All Gold mining current liabilities

Current liabilities=$5,200 + $2,300

Current liabilities=$7,500

5. Long-term debt=Silver Enterprises long-term debt + Silver Enterprises new long-term debt

Long-term debt=$3700+$10,500

Long-term debt=$14,200

6. Equity=$17,300 (only of Silver Enterprises)