EXERCISE 22

Acquisition Method LO 6

The balance sheets of Petrello Company and Sanchez Company as of January 1, 2019, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of 1/212 share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $48; Sanchez, $24. The fair values of Sanchez Company's assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $720,000.

	Petrello	Sanchez
Cash	$480,000	$200,000
Receivables	480,000	240,000
Inventories	2,000,000	240,000
Plant and equipment (net)	3,840,000	800,000
Total assets	$ 6,800,000	$ 1,480,000
Liabilities	$ 1,200,000	$320,000
Common stock, $16 par value	3,440,000	800,000
Other contributed capital	400,000	0
Retained earnings	1,760,000	360,000
Total equities	$ 6,800,000	$ 1,480,000

Required:

Prepare a balance sheet for Petrello Company immediately after the merger.