Assume the Following Balance Sheets Are Stated at Book Value

question 48

Multiple Choice

Assume the following balance sheets are stated at book value.
Suppose the fair market value of Loaf's fixed assets is $7,200 versus the $3,300 book value shown.Meat pays $10,200 for Loaf and raises the needed funds through an issue of long-term debt.Assume the purchase method of accounting is used.The post-merger balance sheet of Meat Co.will have total debt of ______ and total equity of ______.

• A) $1,600;$11,500
• B) $1,600;$15,400
• C) $10,200;$15,400
• D) $14,500;$11,500
• E) $14,500;$15,400

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Definitions:

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, typically including the balance sheet, income statement, and cash flow statement.

Acid-Test Ratio

is a financial metric that assesses a company's ability to pay off its current liabilities with its most liquid assets, excluding inventory.

Balance Sheet

An accounting document summarizing assets, liabilities, and owners' equity of a business on a specific date.

Sales On Account

Transactions where goods are sold and payment is deferred, allowing the buyer to pay at a later date, typically generating accounts receivable for the seller.