Silver Enterprises Has Acquired All Gold Mining in a Merger

question 42

Multiple Choice

Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms. $$\begin{array} { l r l r } & { \text { Silver Enterprises } } & \\\text { Current assets } & \$ 1,500 & \text { Current liabilities } & \$ 1,000 \\\text { Other assets } & 400 & \text { Long-term debt } & 500 \\\text { Net fixed assets } & \frac { 2,300 } { \$ 4,200 } & \text { Equity } & \mathbf { 2 , 7 0 0 } \\\text { Total } & \underline { \$ 4,200 } \\& { \text { All Gold Mining } } \\\text { Current assets } & \$ 600 & \text { Current liabilities } & \$ 500 \\\text { Other assets } & \mathbf { 2 1 0 } & \text { Long-term debt } & 0 \\\text { Net fixed assets } & \underline { 1,600 } & \text { Equity } & \underline { 1,910 } \\\text { Total } & \underline { \$ 2,410 } & \text { Total } & \underline { \$ 2,410 }\end{array}$$ Assume the merger is treated as a purchase for accounting purposes.The market value of All Gold Mining's fixed assets is $3,800; the market values for current and other assets are the same as the book values.Assume that Silver Enterprises issues $5,000 in new long-term debt to finance the acquisition.The post-merger balance sheet will reflect goodwill of _____ and total equity of _____.

• A)$640; $2,700
• B)$640; $4,610
• C)$890; $2,700
• D)$890; $4,610
• E)$890; $5,500

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