The PEN Corporation with a book value of $20 million and a market value of $30 million has merged with the CNC Corporation with a book value of $6 million and a market value of
$8 million at a price of $9 million. If the transaction is a purchase then the total assets on the books of the new company will be:

Question

Quizplus · Accepted Answer

Since the transaction is a purchase, the total cost of the acquisition will be recorded as an increase in assets on the books of the new company. The total cost of the acquisition is $9 million. The book value of PEN Corporation is $20 million and the book value of CNC Corporation is $6 million, so the total book value of the assets of the new company will be $20 million + $6 million = $26 million. However, the market value of PEN Corporation is $30 million and the market value of CNC Corporation is $8 million, so the total market value of the assets of the new company will be $30 million + $8 million = $38 million. Therefore, the total assets on the books of the new company will be $38 million.

The PEN Corporation with a Book Value of $20 Million