Chapter 29, Problem 2QP

Summary Introduction

To construct: The post merger balance sheet for Firm X by using purchase accounting method.

Merger:

Merger is the combination of two entities into one in which the shareholders of both companies merge their resources into a new company.

Purchase Accounting Method for Mergers:

In the purchase accounting method, the assets of the targeted company has to be recorded into the current market value in the books of the acquiring company and goodwill assets account has to be created. Goodwill is the difference of current market value and the purchase price.

Balance Sheet:

Balance sheet is the summarized statement of total assets and total liabilities of a company in an accounting period. It is one of the financial statements of accounting.