Vertical Merger
Company 1 has issued $300,000 in new long-term debt to pay for its purchase (300,000 is the purchase price). Construct a balance sheet for a new corporation if the merger is treated as a purchase for accounting purposes. The balance sheets shown here represent the assets of both firms at their market value. Assume these market values are also the book values.
Company 1
Current assets $400 Current liabilities $200
Other assets 100 Long-term debt 100
Net fixed assets 500 Equity 700
Total $1,000 Total $1,000
Company 2
Current assets $80 Current liabilities $80
Other assets 40 Equity 120
Net Fixed assets 80
Total $200 Total $200