Problem:
Balance Sheet for Mergers:
Consider the following pre-merger information about firm X and firm Y.
Firm X Firm Y
Total earnings $40,000 $15,000
Shares outstanding (per mkt Shares)
Market $49 $18
Book $20 $7
Assume that firm X acquires firm Y by paying cash for all the shares outstanding at a merger premium of $5 per share. Assuming that neither firm has any debt before of after the merger, construct the post merger balance sheet for firm X assuming the use of (a) pooling of interests accounting methods and (b) purchase accounting methods.