Question

Q2. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger agreement, the companies reported the following data:

Balance Sheet	Zaid Ltd		Zafar Ltd
	Book Value	Fair Value	Book Value	Fair Value
Cas & Receivables	80,000	80,000	10,000	10,000
Inventory	110,000	160,000	40,000	52,000
Machinery	120,000	150,000	50,000	75,000
Land & Building	480,000	350,000	250,000	200,000
Accumulated Depreciation	(130,000)		(50,000)
Total Assets	660,000	740,000	300,000	337,000
Current Liabilities	100,000	120,000	75,000	75,000
Common Stock	300,000		50,000
Capital in excess of Par Value	40,000		10,000
Retained Earnings	220,000		165,000
Total Liabilities	660,000		300,000

Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the shares are $400 and $75, respectively.

Required:

Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a balance sheet for the combined entity immediately following the merger.

Answer 1