Question

Consider the following premerger information about Firm X and Firm Y:

	Firm X			Firm Y
Total earnings	$	93,000		$	21,000
Shares outstanding		50,000			15,000
Per-share values:
Market	$	50		$	21
Book	$	17		$	8

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $8 per share, and that neither firm has any debt before or after the merger.

List the assets of the combined firm assuming the purchase accounting method is used.

Assets from X	$
Assets from Y
Goodwill
Total Assets XY	$

Answer 1

Assets from X = Shares outstanding x Book value of the shares

Assets from X = 50000 x $17

Assets from X = $850,000.00

.

Assets from Y = Shares outstanding x Market value of the shares

Assets from Y = 15000 x $21

Assets from Y = $315,000.00

.

Goodwill = Shares outstanding of Y x Merger premium

Goodwill = 15000 x $8

Goodwill = $120,000.00

.

Total assets from XY = Assets from X + Assets from Y + Goodwill

Total assets from XY = $850,000.00 + $315,000.00 + $120,000.00

Total assets from XY = $1,285,000.00