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three companies a l and m whose december 31 year 5 balance sheets below have agreed 737195

Three companies, A, L, and M, whose December 31, Year 5, balance sheets below, have agreed to combine as at January 1, Year 6.

Each of the companies has a very small proportion of an intensely competitive market dominated by four much larger companies. In order to survive, they have decided to merge into one company. The merger agreement states that Company A will buy the assets and liabilities of each of the other two companies by issuing 27,000 common shares to Company L and 25,000 common shares to Company M, after which the two companies will be wound up.

Company A’s shares are currently trading at $5 per share.

Company A will incur the following costs:

Costs of issuing shares

$ 8,000

Professional fees

20,000

$28,000

The following information has been assembled regarding the three companies:

COMPANY A

Carrying amount

Fair value

Current assets

$ 99,900

$102,000

Plant and equipment (net)

147,600

160,000

$247,500

Liabilities

$ 80,000

75,000

Common shares (50,000 shares)

75,000

Retained earnings

92,500

$247,500

COMPANY L

Carrying amount

Current assets

$ 60,000

Fair value

Plant and equipment (net)

93,000

$ 65,000

$153,000

98,000

Liabilities

$ 35,000

36,000

Common shares (24,000 shares)

48,000

Retained earnings

70,000

$153,000

COMPANY M

Carrying amount

Fair value

Current assets

$ 52,000

$ 68,000

Plant and equipment (net)

115,000

120,000

$167,000

Liabilities

$ 72,000

70,000

Common shares (33,000 shares)

60,000

Retained earnings

35,000

Required:

Prepare the balance sheet of Company A on January 2, Year 6, after Company L and Company M have been wound up.

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