Exercise 2-2

The balance sheets of Petrello Company and Sanchez Company as of January 1, 2014, 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 1/2 share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $50; Sanchez, $25. The fair values of Sanchez Companys assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $756,220.

		Petrello		Sanchez
Cash		$446,200		$184,800
Receivables		512,850		218,560
Inventories		1,997,500		250,670
Plant and equipment (net)		4,026,110		834,500
Total assets		$6,982,660		$1,488,530
Current Liabilities		$1,229,500		$292,050
Common stock ($16 par value)		3,396,700		800,000
Other contributed capital		439,600		0
Retained earnings		1,916,860		396,480
Total equities		$6,982,660		$1,488,530

Prepare a balance sheet for Petrello Company immediately after the merger. (List assets in order of liquidity.)

ASSC PETRELLO COMPANY Balance Sheet January 1, 2014 Assets $ Liabilities and Stockholders' Equity S LINK TO TEXT e here to search O BE