Myers Company Ltd. was formed 10 years ago by the issuance of 34,000 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 $446,400 cash for the Norris net assets, to be financed by a $446,400 bank loan due in five years. In addition, Myers would incur legal, appraisal, and finders' fees for a total cost of $6,200.

PROPOSAL 2:

Myers would issue 62,000 shares currently trading at $7.20 each for the Norris net assets. Other costs associated with the takeover would be as follows: 

Legal, appraisal, and finders' fees................................ $ 6,200

Costs of issuing shares................................................... 8,200

                                                                                          $14,400

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:

(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.

Transcribed Image Text:

Myers Carrying Amount $ 152,000 Norris Norris Carrying Amount $ 64,500 Fair Value $ 64,500 Cash Accounts receivable Inventory Land Buildings (net) Equipment (net) 68,200 148,220 222,000 179,200 73,450 386,120 122,110 437,000 87,000 262,505 33,020 36,020 90,945 $1,507,770 29,705 $409,785 27,945 Myers Carrying Amount $ 145,335 Norris Norris Fair Value Carrying Amount $ 53,115 Current liabilities Non-current liabilities Common shares Retained earnings 53,115 162,000 167,000 512,000 112,000 850,435 $1,507,770 82,670 $409,785