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Coca-Cola Corporation has acquired Pepsi-Cola in a merger transaction.
The fixed Assets of Coca-Cola have a market value of 10 Billions, the market values for the other assets are the same as book values.
The market value for Pepsi-Cola fixed assets is 400 Billions, the market values for the other assets are the same as book values.
Assume that Coca-Cola issues 800 Billions in new long-term debt to finance the acquisition.
The following balance sheets represent the premerger book values.
Coca-Cola
Current assets 100 € Current liabilities 95 €
Other assets 50 € Long-term debt 15 €
Net fixed assets 200 € Equity 240 €
Total 350 € 350 €
Pepsi-Cola
Current assets 95 € Current liabilities 80 €
Other assets 60 € Long-term debt 300 €
Net fixed assets 250 € Equity 25 €
Total 405 € 405 €
Prepare the balance sheet for the new corporation if the merger is treated as a purchase for accounting purposes.
