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D Ltd and H Corporation are both engaged in the manufacture of computers On July 1 Year 5 they agree to a merger whereby D will issue 300000 shares with current market value of $9 each for the

D Ltd. and H Corporation are both engaged in the manufacture of computers. On July 1, Year 5, they agree to a merger, whereby D will issue 300,000 shares with current market value of $9 each for the net assets of H.

Summarized balance sheets of the two companies prior to the merger are presented below:

 

BALANCE SHEET

 

 

D Ltd.

H Corporation

 

Carrying amount

Carrying amount

Fair value

Current assets

$ 450,000

$ 500,000

$ 510,000

Non-current assets (net)

4,950,000

3,200,000

3,500,000

 

$5,400,000

$3,700,000

 

BALANCE SHEET

 

D Ltd.

H Corporation

 

Carrying amount

Carrying amount

Fair value

Current liabilities

$ 600,000

$ 800,000

800,000

Long-term debt

1,100,000

900,000

920,000

Common shares

2,500,000

500,000

 

Retained earnings

1,200,000

1,500,000

 

 

$5,400,000

$3,700,000

In determining the purchase price, the management of D Ltd. noted that H Corporation leases a manufacturing facility under an operating lease that has terms that are favorable relative to market terms. However, the lease agreement explicitly prohibits transfer of the lease (through either sale or sublease). An independent appraiser placed a value of $60,000 on this favorable lease agreement.

Required:

Prepare the July 1, Year 5, balance sheet of D, after the merger.

Aug 13 2020 Read more Less More

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