Leveraged Buyout The managers of Park Company own 1,000 of its 20,000 outstanding common shares. Step Company is formed by the managers of Park Company to take over Park Company in a leveraged buyout. The managers contribute their shares in Park Company, and Step Company then borrows $90,000 to purchase the remaining 19,000 shares of Park Company for $80,000; the remaining $10,000 is used for working capital. Park Company is then merged into Step Company effective January 1, 2003. Data relevant to Park Company immediately prior to the leveraged buyout follow: LO4 Book Value Fair Value Current Assets $12,000 $12,000 Plant Assets 35,000 70,000 Liabilities (7,000) (7,000)
Stockholders’ Equity $40,000 $75,000 Required:
A. Prepare journal entries on Step Company’s books to reflect the effects of the leveraged buyout.
B. Prepare a balance sheet for Step Company immediately after the merger.