Consider the following premerger information about Firm X and Firm Y: Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $3 per share.Also assume that neither firm has any debt before or after the merger.What is the value of the total equity of the combined firm,XY,if the purchase method of accounting is used?
A)$1,274,000
B)$1,316,000
C)$1,352,000
D)$1,422,000
E)$1,427,000

Question

Consider the following premerger information about Firm X and Firm Y:  Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $3 per share.Also assume that neither firm has any debt before or after the merger.What is the value of the total equity of the combined firm,XY,if the purchase method of accounting is used?
A)$1,274,000 
B)$1,316,000 
C)$1,352,000 
D)$1,422,000 
E)$1,427,000

Quizplus · Accepted Answer

Assets from X = 26,000($26) = $676,000 (book value)Assets from Y = 26,000($23) = $598,000 (market value)Goodwill = 26,000($23 + $3) - $598,000 = $78,000Total Assets XY = Total equity XY = $676,000 + $598,000 + $78,000 = $1,352,000

Consider the Following Premerger Information About Firm X and Firm