ituation

Sun Inc. is contemplating a tender offer to acquire 80% of Moon Corporation's common stock. Moon's shares are currently quoted on the New York Stock Exchange at $25 per share In order to have a reasonable chance of the tender offer attracting 80% of Moon's stock, Sun believes it will have to offer at least $30 per share. If the tender offer is made and is successful, the purchase will be consummated on January 1, 2024. Michael Jackson, the chairperson of Sun's acquisitions committee, has provided you with the projected 2024 financial statements for Sun Company without the proposed acquisition and the 2024 Projected Financial Statements of the Moon company in Table 1

If the tender offer is successful, Sun will finance the acquisition by issuing $36,000 of 6% nonconvertible bonds at par on January 1, 2024. The bonds would first pay interest on July 1, 2024 and would pay interest semi annually thereafter each January 1 and July 1 This business combination will be recorded using acquisition method and Sun will account for the investment using the equity method. Although most of the legal work related to the acquisition will be handled by Sun's staff attorney, direct costs to prepare and process the tender offer will total $750 and will be paid in cash by Sun in 2024.

Additional Information

As of January 1, 2024, all of Moon Company's assets and liabilities are fairly valued except for machinery with a book value of $5,000, an estimated fair value of $6,000, and a 5-year remaining useful life. Assume that straight-line depreciation is used to amortize any revaluation increment.

No transactions between these companies occurred prior to 2024. Regardless of whether they combine, Sun Company plans to buy $15,000 of merchandise from Moon Company in 2024 and will have $1,200 of these purchases remaining in inventory on December 31, 2024. In addition, Moon is expected to buy $900 of merchandise from Sun in 2024 and to have $150 of these purchases in inventory on December 31, 2024. Sun and Moon price their products to yield a 20 percent and 25 percent markup on cost, respectively.

Sun Company intends to use three financial yardsticks to determine the financial attractiveness of the combination. First, Sun wishes to acquire Subsidiary Corporation Moon only if 2024 consolidated earnings per share will be at least as high as the earnings per share Sun would report if no combination takes place. Second, Sun will consider the proposed combination unattractive if it will cause the consolidated current ratio to fall below two to one Third, return on average stockholders' equity must remain above 20% for the combined entity. If the financial yardsticks described above and the nonfinancial aspects of the combination are appealing, then the tender offer will be made. On the other hand, if these objectives are not met, the acquisition will either be restructured or abandoned

Required

Phase I ( Possible Points 150 and Due in week 7)

1.Adjust the separate financial statements of Sun Company to reflect the proposed acquisition. Adjust the given Sun's pro forma 2024 financial statements to reflect the proposed acquisition (i.e., adjust Parent's forecasted financial statements - Statement of Operations, Statement of Retained Earnings and Balance Sheet) for bond issuance, stock purchase, income from subsidiary, etc.). Support your statements with appropriate work papers and journal entries.

2. Prepare pro forma consolidation worksheet. Prepare a pro forma consolidation worksheet for Sun Company and it's proposed subsidiary Moon Company as of December 31, 2024. Use the adjusted pro forma 2024 financial statements of Sun Company prepared in #1 and the projected 2024 financial statements of Moon company in table 1. Show all consolidation adjusting entries including non controlling interest (NCI) entries.

Sun and Moon Company Proforma Financial Statements for 2024 Moon 2024 Sun 2024 Projected Projected Financial Statements Financial Without Acquisition Statements Sales Retained Earnings January 1 Add Net Income Deduct Dividends Retained Earnings December 31 \begin{tabular}{l} $ \\ $ \\ \hline \end{tabular} Cash Accounts Receivable Inventory Property, Plant and Equipment Accumulated Depreciation Total Assets Accounts Payable Common Stock Paid-in Capital in Excess of Par Retained Earnings Total Liabilities \& Equities \begin{tabular}{rrrr} & 17,820 & 8,100 \\ \hline$ & 98,220 & $ & 11,700 \\ \hline \hline \end{tabular} *Sun: $13 par value. Moon: $20 par value Sun and Moon Company Proforma Financial Statements for 2024 Moon 2024 Sun 2024 Projected Projected Financial Statements Financial Without Acquisition Statements Sales Retained Earnings January 1 Add Net Income Deduct Dividends Retained Earnings December 31 \begin{tabular}{l} $ \\ $ \\ \hline \end{tabular} Cash Accounts Receivable Inventory Property, Plant and Equipment Accumulated Depreciation Total Assets Accounts Payable Common Stock Paid-in Capital in Excess of Par Retained Earnings Total Liabilities \& Equities \begin{tabular}{rrrr} & 17,820 & 8,100 \\ \hline$ & 98,220 & $ & 11,700 \\ \hline \hline \end{tabular} *Sun: $13 par value. Moon: $20 par value