Question
Balance sheets for Salt Company and Pepper Company on December 31, 2013, follow: Salt Pepper ASSETS Cash $97,130 $183,620 Receivables 118,880 248,880 Inventories 138,730 241,372
Balance sheets for Salt Company and Pepper Company on December 31, 2013, follow:
Salt | Pepper | |||
ASSETS | ||||
Cash | $97,130 | $183,620 | ||
Receivables | 118,880 | 248,880 | ||
Inventories | 138,730 | 241,372 | ||
Plant assets | 711,180 | 1,121,360 | ||
Total assets | $1,065,920 | $1,795,232 | ||
EQUITIES | ||||
Accounts payable | $177,840 | $245,513 | ||
Mortgage payable | 154,910 | 190,000 | ||
Common stock, $20 par value | 317,030 | 870,400 | ||
Other contributed capital | 185,880 | 253,410 | ||
Retained earnings | 230,260 | 235,909 | ||
Total equities | $1,065,920 | $1,795,232 |
Pepper Company tentatively plans to issue 27,540 shares of its $20 par value stock, which has a current market value of $39 per share net of commissions and other issue costs. Pepper Company then plans to acquire the assets and assume the liabilities of Salt Company for a cash payment of $865,900 and $288,400 in long-term 8% notes payable. Pepper Companys receivables include $55,450 owed by Salt Company. Pepper Company is willing to pay more than the book value of Salt Company assets because plant assets are undervalued by $234,090 and Salt Company has historically earned above-normal profits. Prepare a pro forma balance sheet showing the effects of these planned transactions.
PEPPER COMPANY Pro Forma Balance Sheet Giving Effect to Proposed Issue of Common Stock and Note Payable for All of the Common Stock of Salt Company under Purchase Accounting December 31, 2013 | ||||||
Audited | Pro Forma | |||||
Balance Sheet | Adjustments | Balance Sheet | ||||
Cash | $183,620 | $ | $ | |||
Receivables | 248,880 | |||||
Inventories | 241,372 | |||||
Plant Assets | 1,121,360 | |||||
Goodwill | 0 | |||||
Total Assets | 1,795,232 | $ | ||||
Accounts Payable | 245,513 | $ | ||||
Notes Payable, 8% | 0 | |||||
Mortgage Payable | 190,000 | |||||
Common Stock, $20 par | 870,400 | |||||
Additional Paid-in Capital | 253,410 | |||||
Retained Earnings | 235,909 | |||||
Total Liabilities and Equity | 1,795,232 |
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