Question

Presented below are the book values and fair values of the assets and liabilities of A, Inc. and B Inc. on Dec 4, 2016, immediately prior to a business combination. The Company is evaluating where A should be the acquirer or if B should be the acquirer.

	Axtel, Inc		Barcel, Inc.
	Book value	Fair value	Book value	Fair value
Current assets	$   40,000	$ 100,000	$   50,000	$   25,000
PP&E	$ 200,000	$ 400,000	$ 150,000	$ 175,000
Current liabilities	$   70,000	$   70,000	$   30,000	$   30,000
Common stock	$ 80,000		$   60,000
Retained earnings	$   90,000		$ 110,000

Previously unreported identifiable intangibles, capitalized per GAAP are:

              A, Inc. $25,000

              B, Inc. $20,000      

Prepare an accounting memo to address the below issues.

What does the balance sheet of the acquiring firm following each of the following business combinations

A borrows $250,000 on a long-term basis and buys full ownership of B for $250,000 cash. The transaction is recorded as a merger.

Answer 1

To The Shareholders of A,
Net Value of B before acquistion			Balance Sheet after Merger of Acquiring Firm
	Fair Value			Amount
Current Assets	25,000		Goodwill	60,000
PPE	175,000		Current Assets	125,000
Current Liabilities	(30,000)		{PPE	575,000
Intangibles	20,000		Current Liabilities	100,000
Net Fair Value	190,000		Loan for Acquistion	250,000
Money Received from A	250,000		Net Assets	410,000
Goodwill generated	60,000		Common Stock	140,000
			Retained Earnings	200,000
			Revaluation Reserve	70,000
			Net Equity	410,000