On January 2, 2011, Pet Corporation enters into a business combination with Sea Corporation in which Sea is dissolved. Pet pays $1,650,000 for Sea, the consideration consisting of 66,000 shares of Pet $10 par common stock with a market value of $25 per share. In addition, Pet pays the following expenses in cash at the time of the merger:
Finders’ fee | $ 70,000 |
Accounting and legal fees | 130,000 |
Registration and issuance costs of securities | 80,000 |
| $280,000 |
Balance sheet and fair value information for the two companies on December 31, 2010, immediately before the merger, is as follows (in thousands):
| Pet Book Value | Sea Book Value | Sea Fair Value |
Cash | $ 300 | $ 60 | $ 60 |
Accounts receivable—net | 460 | 100 | 80 |
Inventories | 1,040 | 160 | 240 |
Land | 800 | 200 | 300 |
Buildings—net | 2,000 | 400 | 600 |
Equipment—net | 1,000 | 600 | 500 |
Total assets | $5,600 | $1,520 | $1,780 |
Accounts payable | $ 600 | $ 80 | $ 80 |
Note payable | 1,200 | 400 | 360 |
Capital stock, $10 par | 1,600 | 600 |
|
Other paid-in capital | 1,200 | 100 |
|
Retained earnings | 1,000 | 340 |
|
Total liabilities and owners’ equity | $5,600 | $1,520 |
|
REQUIRED: Prepare a balance sheet for Pet Corporation as of January 2, 2011, immediately after the merger, assuming the merger is treated as an acquisition.
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