Consider the following premerger information about Firm X an

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

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.

Solution

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