Question

Mergers and Acquisiions Axtel, Inc. Barcel, Inc. Book Value 50,000 50,000 $200,000 Fair Value $25,000 175,000 Book Value Fair Value Current assets Property, plant and equipment..200,000 40,000 $100,000 400,000 Total assets . $240,000 . . $70,000 30,000 80,000 90,000 60,000 30,000 10,000 $200,000 Previously unreported identifiable intangibles, capitalized per GAAP, are: Axtel, Inc. $25,000 Barcel, Inc. 20,000 Required Prepare the balance sheet of the acquiring firm following each of the following business combinations: (1) Axtel borrows $250,000 on a long-term basis and buys full ownership of Barcel for $250,000 a. cash. The transaction is recorded as a merger. (2) Barcel borrows $505,000 on a long-term basis, and buys full ownership of Axtel for $505,000 cash. The transaction is recorded as a merger

Answer 1

Part a)

1)

The balance sheet of the acquiring firm (Axtel Inc.) is prepared as below:

Axtel Inc.
Balance Sheet
Assets	Amount	Liabilities	Amount
Current Assets (40,000 + 25,000)	65,000	Current Liabilities (70,000 + 30,000)	100,000
Property, Plant and Equipment (200,000 + 175,000)	375,000	Long-Term Debt	250,000
Identifiable Intangibles	20,000	Common Stock	80,000
Goodwill	60,000	Retained Earnings	90,000
Total Assets	$520,000	Total Liabilities and Stockholder's Equity	$520,000

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2)

The balance sheet of the acquiring firm (Barcel Inc.) is prepared as below:

Barcel Inc.
Balance Sheet
Assets	Amount	Liabilities	Amount
Current Assets (50,000 + 100,000)	150,000	Current Liabilities (30,000 + 70,000)	100,000
Property, Plant and Equipment (150,000 + 400,000)	550,000	Long-Term Debt	505,000
Identifiable Intangibles	25,000	Common Stock	60,000
Goodwill	50,000	Retained Earnings	110,000
Total Assets	$775,000	Total Liabilities and Stockholder's Equity	$775,000

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Notes:

1) While preparing the balance sheet of the acquiring firm, assets and liabilities are taken at book value for the acquiring firm and at fair value for the acquired company.

2) Goodwill is the difference between the value of total liabilities and stockholder's equity and value of total assets.

3) Identifiable intangibles are reported for the acquired firm in the balance sheet of the acquiring firm.

4) Common stock and retained earnings are reported only for the acquiring firm.