As discussed in todays meeting, Paddle-up Inc.s Board of Directors has requested pro-forma financial statements for several acquisition scenarios of Stream Company.

For the past several years Paddle-Up Inc.s Executive Management Team had experienced continued pressure from their investors for their lack of growth (markets share, revenue, and profits). On September 1, 2018 the Chief Executive Officer, Chief Operating Officer, and the Chief financial Officer all resigned.

Previous to the Executive Management Teams resignation, Paddle-Up Inc.s Board of Directors were in discussions with Stream Companys Board of Directors about a possible acquisition. The combination of constant pressure from investors and learning that the Board had been in negotiations with Stream Company, without their knowledge, sparked the abrupt resignations.

Stream Company shareholders want cash for the sale of 100% of their company (via an Asset Acquisition). Paddle-Up Inc.s Board of Directors prefers to buy 90% of Stream Company using a combination of cash and Paddle-Up shares (via a Stock Acquisition).

The Board has requested that the accounting department provide a pro-forma balance sheet at date of acquisition (use January 1, 2018 balance sheet information for both companies) for the following two scenarios:

1. Purchase 100% of Stream Company; accounting for as an asset acquisition assuming a cash only payment of $550 million.
2. Purchase 90% of Stream Company; accounting for as a stock acquisition (consolidation) assuming consideration (payment) given is a combination of cash ($50 million) and Paddle-Up stock issuance (20,000,000 shares).

The Board has also requested that the accounting department provide pro-forma consolidated financial statements (income statement, statement of retained earnings, and balance sheet) for the 90% stock acquisition scenario as of December 31, 2018 (using the complete equity method).

Finally, in addition to providing the pro-forma financial statements, the board would like you to write a memorandum that addresses the following:

1. Analysis of the two acquisition date scenarios (asset acquisition and stock acquisition). Include in the analysis a brief explanation of the accounting differences between asset and stock acquisitions.
2. Analysis of the consolidated financial statements as of 12/31/18.
3. Recommendation in regards to several ethical questions included in a note received from the Paddle-Up Inc. acquisition team (Exhibit A). Consider whether the type of acquisition (asset or stock) impacts your evaluation.
4. Analysis whether the stock acquisition of Stream Company is a good financial and strategic decision.

Report Requirement Detail):

1. Memorandum to the Board of Directors
2. Asset acquisition balance sheet (date of acquisition).
   1. Goodwill calculation
   2. Journal entry
   3. Schedule showing the impact of the journal entry on Paddle-Up Inc.s balance sheet to arrive at the post-asset acquisition balance sheet.
3. Stock acquisition balance sheet (date of acquisition).
   1. Acquisition Journal entry
   2. Workpaper entries in journal entry form
   3. Workpaper
4. Stock acquisition as of 12/31/18 (complete equity method).
   1. Acquisition Journal entry
   2. Workpaper entries in journal entry form
   3. Workpaper

Notes

1. A completed project evaluation
2. Supporting Data:
3. The request for a memorandum all the necessary information to complete the project.

Exhibit A The Paddle-Up acquisition team discovered during their due diligence that Stream Company did not realize the following key facts:

• Stream Company management and board did not realize their patents and brands had significant value. Thus, they did not include these asset values in their own internal evaluation of the potential sale to Paddle-Up Inc.
• Stream Company management and board does not fully understand that more than 25% of their employees will be let go (fired) within 6 months of the acquisition.

Stream Company management and board do not realize that their long-term customers will be faced with dramatic price increases to be implemented by Paddle-Up Inc.

Acquisition cost	550,000
Less:
Fair Value Assets from Stream Co	585,000
Value of Godwill	-35,000

Yeer ended December 31, 2018 Trial Balance Fair value Stream Co. Cash Stream Co 78,000 94,000 Balance Sheet & related information as of 1/1/18 (just before acquistion) Balance sheet (in thousands) Paddke-Up Inc Stream Co Assets: Cash 540,000 $ 60,000 Accounts Receivable 166,000 $ 90,000 Inventory 309,000 $ 95,000 Buildings 940,000 $ 250,000 Land $ 160,000 $ 70,000 Total Assets $ 2,115,000 $ 565,000 158,000 $ $ $ $ $ $ 60,000 85,000 90,000 275,000 75,000 585,000 in thousands) Padake-Up Inc 472,000 197,000 75,000 448,000 450,000 962,000 160.000 70,000 822,000 250,500 3,906,500 76,000 275,000 540,000 620,000 923,000 1,420,000 52,500 3,906,500 Accounts Receivable Notes receivable Inventory Investment in S Company Buildings Land Dividends Declared COGS Operating expenses Total debits Accounts payable Notes payable Common stock APIC Retained earings 1/1 Sales Dividend and interest income Total credits Lebrities: Accounts Payable Notes payable - Long tem Total Liabilities 132,000 300,000 432,000 $ $ $ 55,000 60,000 115,000 300,000 70,000 50,000 242,000 124,000 1,116.000 46,000 120,000 200,000 160.000 90.000 500,000 55,000 60,000 115,000 $ $ Stockholders equity: Common stock, Note 1 APIC Retained Earnings Total Equity Total Liabilities and Equity $ $ $ 500,000 260,000 923,000 1,683,000 2,115,000 $ $ $ $ $ 200,000 160,000 90,000 450,000 565,000 1,116,000 Note 1: Common Stock $2 par value (Paddle Up) and $1 par value (Strearn Co.) Note 2: Paddle-up stock has a Market value of $20 per share as of 1/1/18 Other Notes: Paddle-up's Note receivable is a receivable from Stream Co. Interest recognized on the the receivable was $7,500 for December 31, 2018. Assets Cash Accounts Receivable Inventory Investment in Stream Co. buildings Land Total Assets Pro-Forma Blance Sheet as of 12/31/2018 Paddle Up Inc Stream Co. 522,000 54,600 143,000 100,00 334,000 65,000 100,000 846,000 25000 160,000 70,000 2,105,000 214,600 Liabilities ans Stockholders' Equity Liabilities Account Payable Notes payable - Long term Total Liabilites 72,000 275,000 347,000 72,000 60,000 132,000 Stockholders' Equity Common Stock APIC Reatined Earnings Total Stockholder's Equity 20,500,000 382000 1243000 22,125,000 200,000 160000 250800 610,800 Total Liabilities and Stockholder'sEquity 22,472,000 742,800 Pro Forma Estatement of Retained Earnings For the Year Ended 12/31/2108 Paddke Up Inc Retained Earnings at 1/1/18 923,000 Net Income 320,000 Sub Total 1,243,000 Retained Earnings at 12/31/18 1,243,000 Stream Co. 90,000 160,800 250,800 250,800 Pro Forma Estatement of Retained Earnings For the Year Ended 12/31/2108 Paddke Up Inc Retained Earnings at 1/1/18 923,000 Net Income 320,000 Sub Total 1,243,000 Retained Earnings at 12/31/18 1,243,000 Stream Co. 90,000 160,800 250,800 250,800 Pro-forma Income Statement For the Year Ended 2018 Paddle-Up Inc. Stream Co. 1,420,000 822,000 598,000 42.11% 500,000 242,000 258,000 51.60% Net Sales Cost of Goods Sold Gross Profit GP % Expenses Operating Expenses Income from Operations Dividend and Interest Income Income Before Tax Taxes 20% Net Income 250,500 347,500 124,000 134,000 52,500 400,000 80,000 320,000 134,000 26,800 160,800 Yeer ended December 31, 2018 Trial Balance Fair value Stream Co. Cash Stream Co 78,000 94,000 Balance Sheet & related information as of 1/1/18 (just before acquistion) Balance sheet (in thousands) Paddke-Up Inc Stream Co Assets: Cash 540,000 $ 60,000 Accounts Receivable 166,000 $ 90,000 Inventory 309,000 $ 95,000 Buildings 940,000 $ 250,000 Land $ 160,000 $ 70,000 Total Assets $ 2,115,000 $ 565,000 158,000 $ $ $ $ $ $ 60,000 85,000 90,000 275,000 75,000 585,000 in thousands) Padake-Up Inc 472,000 197,000 75,000 448,000 450,000 962,000 160.000 70,000 822,000 250,500 3,906,500 76,000 275,000 540,000 620,000 923,000 1,420,000 52,500 3,906,500 Accounts Receivable Notes receivable Inventory Investment in S Company Buildings Land Dividends Declared COGS Operating expenses Total debits Accounts payable Notes payable Common stock APIC Retained earings 1/1 Sales Dividend and interest income Total credits Lebrities: Accounts Payable Notes payable - Long tem Total Liabilities 132,000 300,000 432,000 $ $ $ 55,000 60,000 115,000 300,000 70,000 50,000 242,000 124,000 1,116.000 46,000 120,000 200,000 160.000 90.000 500,000 55,000 60,000 115,000 $ $ Stockholders equity: Common stock, Note 1 APIC Retained Earnings Total Equity Total Liabilities and Equity $ $ $ 500,000 260,000 923,000 1,683,000 2,115,000 $ $ $ $ $ 200,000 160,000 90,000 450,000 565,000 1,116,000 Note 1: Common Stock $2 par value (Paddle Up) and $1 par value (Strearn Co.) Note 2: Paddle-up stock has a Market value of $20 per share as of 1/1/18 Other Notes: Paddle-up's Note receivable is a receivable from Stream Co. Interest recognized on the the receivable was $7,500 for December 31, 2018. Assets Cash Accounts Receivable Inventory Investment in Stream Co. buildings Land Total Assets Pro-Forma Blance Sheet as of 12/31/2018 Paddle Up Inc Stream Co. 522,000 54,600 143,000 100,00 334,000 65,000 100,000 846,000 25000 160,000 70,000 2,105,000 214,600 Liabilities ans Stockholders' Equity Liabilities Account Payable Notes payable - Long term Total Liabilites 72,000 275,000 347,000 72,000 60,000 132,000 Stockholders' Equity Common Stock APIC Reatined Earnings Total Stockholder's Equity 20,500,000 382000 1243000 22,125,000 200,000 160000 250800 610,800 Total Liabilities and Stockholder'sEquity 22,472,000 742,800 Pro Forma Estatement of Retained Earnings For the Year Ended 12/31/2108 Paddke Up Inc Retained Earnings at 1/1/18 923,000 Net Income 320,000 Sub Total 1,243,000 Retained Earnings at 12/31/18 1,243,000 Stream Co. 90,000 160,800 250,800 250,800 Pro Forma Estatement of Retained Earnings For the Year Ended 12/31/2108 Paddke Up Inc Retained Earnings at 1/1/18 923,000 Net Income 320,000 Sub Total 1,243,000 Retained Earnings at 12/31/18 1,243,000 Stream Co. 90,000 160,800 250,800 250,800 Pro-forma Income Statement For the Year Ended 2018 Paddle-Up Inc. Stream Co. 1,420,000 822,000 598,000 42.11% 500,000 242,000 258,000 51.60% Net Sales Cost of Goods Sold Gross Profit GP % Expenses Operating Expenses Income from Operations Dividend and Interest Income Income Before Tax Taxes 20% Net Income 250,500 347,500 124,000 134,000 52,500 400,000 80,000 320,000 134,000 26,800 160,800