ABC123 Inc Has Decided to Purchase 100% the Voting Shares

question 43

Essay

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: $$\begin{array} { | l | l | l | } \hline & \text { ABC123 Inc } & \text { DEF 456 Inc } \\\hline & & \\\hline \text { Cash and Short-Term Securities } & \$ 900,000 & \$ 200,000 \\\hline \text { Inventory } & \$ 50,000 & \$ 120,000 \\\hline \text { Plant and Equipment (net) } & \$ 350,000 & \$ 150,000 \\\hline \text { Goodwill } & \$ - & \$ 80,000 \\\hline \text { Total Assets } & \$ 1,300,000 & \$ 550,000 \\\hline & & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 160,000 \\\hline \text { Bonds Pay able } & \$ 400,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 220,000 & \$ 90,000 \\\hline \text { Total Liabilities and Equity } & \$ 1,300,000 & \$ 550,000 \\\hline\end{array}$$ On that date, the fair values of DEF456 Assets and Liabilities were as follows: $\begin{array}{|l|l|}\hline \text { Cash and Short-Term Securities } & \$ 200,000 \\\hline \text { Inventory } & \$ 90,000 \\\hline \text { Plant and Equipment (net) } & \$ 250,000 \\\hline \text { Current Liabilities } & \$ 160,000 \\\hline \text { Bonds Pay able } & \$ 88,000 \\\hline\end{array}$
In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively.
Assume that both companies would be wound up and a new company called ABCDEF Inc. was created in its place. Prepare the Balance Sheet to reflect this occurrence as at July 1, 2018. The new entity would have10,000 voting shares issued to the current shareholders for a total market value of $1,222,000.

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Definitions:

International Trade

The exchange of goods and services between countries, allowing economies to grow by specializing in the production of goods they can produce most efficiently.

Quantity Demanded

The total amount of a good or service that consumers are willing to buy at a given price level in a given period.

World Price

The global market price of a commodity, determined by worldwide supply and demand.

Quantity Supplied

How much of a certain good or service suppliers are ready and able to make available for purchase at a specific price point.