Assume Company A acquires Company B in a statutory merger. Co. B's assets have a book...

 

Transcribed Image Text:

Assume Company A acquires Company B in a statutory merger. Co. B's assets have a book value of $25,000,000 and a fair value of $27,000,000. Co. B's liabilities have a book value of $2,800,000 and a fair value of $3,000,000. Co. A pays the following to acquire the assets and liabilities of Co. B: • $5,000,000 cash • $20,000,000 fair value of no-par stock • Related to future earnings goals Co. A agrees to additional future cash payments of $525,000 (present value of $500,000) Legal fees related to the merger of $250,000 • Pays $400,000 in stock registration costs • Converts vested stock options held by Co. B employees to $4,000,000 of Co. A stock (fair value) • Stock awards for post-merger employee service have a fair value of $2,00,000 • Co. A assumes Co. B's estimated product liability related to a lawsuit estimated to be $1,500,000 Prepare the journal entry at the date of acquisition: Assume Company A acquires Company B in a statutory merger. Co. B's assets have a book value of $25,000,000 and a fair value of $27,000,000. Co. B's liabilities have a book value of $2,800,000 and a fair value of $3,000,000. Co. A pays the following to acquire the assets and liabilities of Co. B: • $5,000,000 cash • $20,000,000 fair value of no-par stock • Related to future earnings goals Co. A agrees to additional future cash payments of $525,000 (present value of $500,000) Legal fees related to the merger of $250,000 • Pays $400,000 in stock registration costs • Converts vested stock options held by Co. B employees to $4,000,000 of Co. A stock (fair value) • Stock awards for post-merger employee service have a fair value of $2,00,000 • Co. A assumes Co. B's estimated product liability related to a lawsuit estimated to be $1,500,000 Prepare the journal entry at the date of acquisition:

Answer rating: 100% (QA)

Calculation of Purchase Consideration Particulars Amount Cash Paid 5000000 Fair value o... View the full answer