Q2. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger agreement,
Q2. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger agreement, the companies reported the following data:
Balance Sheet
Zaid Ltd
Zafar Ltd
Book Value
Fair Value
Book Value
Fair Value
Cas & Receivables
80,000
80,000
10,000
10,000
Inventory
110,000
160,000
40,000
52,000
Machinery
120,000
150,000
50,000
75,000
Land & Building
480,000
350,000
250,000
200,000
Accumulated Depreciation
(130,000)
(50,000)
Total Assets
660,000
740,000
300,000
337,000
Current Liabilities
100,000
120,000
75,000
75,000
Common Stock
300,000
50,000
Capital in excess of Par Value
40,000
10,000
Retained Earnings
220,000
165,000
Total Liabilities
660,000
300,000
Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the shares are $400 and $75, respectively.
Required:
Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a balance sheet for the combined entity immediately following the merger.
