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Octane Company and Bio Company have announced terms of an exchange agreement under which Octane will issue 10,000 shares of its $5 par value common stock to acquire all of Bio's assets. Octane shares are trading at $28, and Bio's $10 par value shares are trading at $15. Historical cost and fair value balance sheet data on January 1, 2008, are as follows:

Cash Land Buildings and Equipment (net) Total Assets Common Stock Additional Paid-In Capital Retained Earnings Total Equities

12. Based on the information provided, what amount will be reported immediately following the business combination for Buildings and Equipment (net) in the combined company's balance sheet?
A. $300,000
B. $370,000
C. $330,000
D. $340,000

*I know the answer is $330,000 but if you can please show computations for that answer.

13. Based on the information provided, what amount will be reported for Common Stock in the combined company's balance sheet immediately following the business combination?
A. $200,000
B. $250,000
C. $300,000
D. $210,000

*I know the answer is $200,000 but if you can please show computations for that answer.

14. Based on the information provided, what amount will be reported for Additional Paid-In Capital in the combined company's balance sheet immediately following the business combination?
A. $60,000
B. $80,000
C. $310,000
D. $290,000

*I know the answer is 290,000 but if you can please show computations for that answer.

15. Based on the information provided, what amount of goodwill will be reported immediately following the business combination in the combined company's balance sheet?
A. $0
B. $50,000
C. $40,000
D. $105,000

*I know the answer is $40,000 but if you can please show computations for that answer.

16. Based on the information provided, what amount will be reported immediately following the business combination for Retained Earnings in the combined company's balance sheet?
A. $170,000
B. $225,000
C. $115,000
D. $210,000

*I know the answer is $170,000 but if you can please show computations for that answer.

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Answer #1
12. Based on the information provided, what amount will be reported immediately following the business combination for Buildings and Equipment (net) in the combined company's balance sheet?
Acquirer Co. (Book Value) Acquiree Co. (Fair Value) Value to be reported
Buildings and Equipment (net)                                      1,80,000                                          1,50,000                           3,30,000
The traferror company takes all the assets of transferee company in the respective fair value.
13. Based on the information provided, what amount will be reported for Common Stock in the combined company's balance sheet immediately following the business combination?
Acquirer Co. (Book Value) Acquiree Co. (Issued at par) Value to be reported
Common Stock                                      1,50,000 50,000 (10,000*5)                           2,00,000
The common stock will increase by the par value only.
14. Based on the information provided, what amount will be reported for Additional Paid-In Capital in the combined company's balance sheet immediately following the business combination?
Acquirer Co. (Book Value) Acquiree Co. Value to be reported
Paid up share capital                                         60,000 2,30,000 [10,000* (28-5)]                           2,90,000
15. Based on the information provided, what amount of goodwill will be reported immediately following the business combination in the combined company's balance sheet?
Computation of Goodwill
Fair Value of Acquiree Co.
Cash                                             40,000
Land                                             50,000
Building and Equipment (Net)                                          1,50,000
Total Value of Net Assets A                                          2,40,000
Consideration paid (28*1000) B                                          2,80,000
Goodwill C=B-A                                             40,000
16. Based on the information provided, what amount will be reported immediately following the business combination for Retained Earnings in the combined company's balance sheet?
The ratined earning of the merged entity will be same as acquirer entity because there is no impact in the retained earning post acquisition
So the correct answer will be $ 1,70,000
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