Question

Myers Company Ltd. was formed 10 years ago by the issuance of 22,000 common shares to three shareholders. Four years later, the company went public and issued an additional 30,000 common shares. The management of Myers is considering a takeover in which Myers would purchase all of the assets and assume all of the liabilities of Norris Inc. Two alternative proposals are being considered:
PROPOSAL 1
Myers would offer to pay $400,000 cash for the Norris net assets, to be financed by a $400,000 bank loan due in five years. In addition, Myers would incur legal, appraisal, and finders’ fees for a total cost of $5,000.
PROPOSAL 2
Myers would issue 50,000 shares currently trading at $8 each for the Norris net assets. Other costs associated with the takeover would be as follows:
Legal, appraisal, and finders’ fees ... $ 5,000
Costs of issuing shares ........ 7,000
$12,000
Norris shareholders would be offered five seats on the 10-member board of directors of Myers, and the management of Norris would be absorbed into the surviving company.
Balance sheet data for the two companies prior to the combination are as follows:
Required:
(a) Prepare the journal entries of Myers for each of the two proposals being considered.
(b) Prepare the balance sheet of Myers after the takeover for each of the proposals being considered.


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  • CreatedJune 08, 2015
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