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Arial 10 A a. Av B Wrap Text Margo & Contar Accounting $ % &8 ili 4 X fx 10 Conditional Formatting AB D E F H - K L M Student Name(s) Class: Advanced Accounting The following information was obtained by the accounting department in order to prepare the pro-forma financial statements for the Board of Directors. Amounts below are actuals or based on management's best estimate of the transaction details. (all amounts in thousands, unless stated otherwise) Balance Sheet December 31, 2019 Assets Paddle-up Stream Cash and receivables 2,860 $ 720 Inventory 1,700 900 Equity method investments 300 Investment in Sub Land 650 175 Buildings and equipment, net 2,400 600 Total assets 7,6105 2,696 Liabilities & Equity Current liabilities 1,500 1,000 Long-term debt 2,000 400 Common stock, par value 500 100 Additional paid in capital 1,200 350 Retained earnings 2,410 845 Total liabilities & equity 7,6105 2,095 Additional Information a) Paddle-up Co expects to pay $1.7 million in cash for the acquistion of Stream Co. Legal and accounting fees are estimated to be $150K b) The fair values of Stream Co's reported net assets are assumed to equal their book values with the exception of the following assets: Stream Co Estimated Fair Value Inventory $800 Equity Method investments Buildings & equipment, net Land 250 420 900 Solution Condensed + Condition Formattis B M 500 BIU a. Av Merge & Center $ % x fx 10 C E F H L c) Inventory and Equity method investments are expected to be sold in 2020. d) Buildings and equipment: 20 year useful life; straight-line depreciation e) During due dilligence, management identified the following unrecorded intangible assets (estimated fair values shown below): -Assembled workforce $300 -Business reputation of Stream Co. -Potential contracts with Oar Inc. 150 -Prime retail location of Stream Co. shops 100 Stream Co. Customer list See below 1) Paddle-up management reqeusted assistance from the accounting department in order to value the customer list intangible given the amount of assumptions that needed to be considered and their unfamiliarity with the income approach'. The following information was obtained from Stream Company's management: -Projected revenue related to this intangible for 2020; 1,000 - Projected annual revenue growth 5% -Cost of sales and operating expenses are estimated as % of revenue 80% -The effective income tax rate for the company 25% -Average remaining useful life of the asset; straight line depreciation 5 years -The appropriate risk adjusted discount rate 24% -Depreciation expense included in operating expenses for 2020 -Depreciation expense is projected to increase in line with revenue growth g) Additional management estimates related to the customer list intangible: 2020 2021 2022 Projected additional capital expenditures 50 51 Capital charge on use of contributory assets 60 60 60 9 50 The accounting department should complete the following steps in order to prepare the pro-forma consolidated balance sheet. Again, management will be using the stock acquisition method of accounting. a. Calculate the valuation of the intangible using the income approach method. (Round to nearest thousand) 10 points 2020 2021 2022 Revenue 1,000 1,050 1,103 Operating Expenses 800 840 882 Projected Operating income 200 221 Income tax expense 50 55 After-tax operating income 150 157 166 Depreciation expense Solution Condensed 210 53 9 10 En + U E F H K L Depreciation expense Capital expenditures Contributory assets capital charge Net cash flow Present value of net cash flows b. Prepare a schedule computing the goodwill / gain on acquisition Acquisition cost Book value Excess of acquisition cost over book value Excess of fair value over book value: 9 50 60 49 40 9 50 60 57 37 10 51 60 64 34 Total 110 10 poin Goodwill / Gain on Acquisition $ Please Retry! c. Next, record Paddle-up's entry to record the acquisition Description 10 points Debit Credit 6 d. Solution Condensed Accounts Taken From Use the drop-down to select ether or "R" for the 10 points 10 B D E H K M N Use the drop-down list to select either or "R" for the 10 points LLIURE Accounts Taken From Books Paddle-up Stream Dr (C1) Dr (Cr) $ Balance sheet accounts Consolidated Balances Dr (Cr) Dr Cr Use the drop-down list to select ether or "R" for the elimination enty Total $ Good Job! $ Good Job Good Job! $ Good Jobl Good Job e. Please enter the working paper eliminating entries below. 10 points + Equity Entry Debit E Credit Good Job! Revalue Entry Debit Credit R Good Job! Solution Condensed Good Job! f. Finally, present the pro-forma consolidated balance sheet at the date of acquisition Paddle-up Corporation and Subsidiary Pro-Forma Consolidated Balance Sheet Date of acquisition Assets Total assets $ Liabilities $ Total liabilities Stockholders' equity Total equity Total liabilities and equity Good Job! Arial 10 A a. Av B Wrap Text Margo & Contar Accounting $ % &8 ili 4 X fx 10 Conditional Formatting AB D E F H - K L M Student Name(s) Class: Advanced Accounting The following information was obtained by the accounting department in order to prepare the pro-forma financial statements for the Board of Directors. Amounts below are actuals or based on management's best estimate of the transaction details. (all amounts in thousands, unless stated otherwise) Balance Sheet December 31, 2019 Assets Paddle-up Stream Cash and receivables 2,860 $ 720 Inventory 1,700 900 Equity method investments 300 Investment in Sub Land 650 175 Buildings and equipment, net 2,400 600 Total assets 7,6105 2,696 Liabilities & Equity Current liabilities 1,500 1,000 Long-term debt 2,000 400 Common stock, par value 500 100 Additional paid in capital 1,200 350 Retained earnings 2,410 845 Total liabilities & equity 7,6105 2,095 Additional Information a) Paddle-up Co expects to pay $1.7 million in cash for the acquistion of Stream Co. Legal and accounting fees are estimated to be $150K b) The fair values of Stream Co's reported net assets are assumed to equal their book values with the exception of the following assets: Stream Co Estimated Fair Value Inventory $800 Equity Method investments Buildings & equipment, net Land 250 420 900 Solution Condensed + Condition Formattis B M 500 BIU a. Av Merge & Center $ % x fx 10 C E F H L c) Inventory and Equity method investments are expected to be sold in 2020. d) Buildings and equipment: 20 year useful life; straight-line depreciation e) During due dilligence, management identified the following unrecorded intangible assets (estimated fair values shown below): -Assembled workforce $300 -Business reputation of Stream Co. -Potential contracts with Oar Inc. 150 -Prime retail location of Stream Co. shops 100 Stream Co. Customer list See below 1) Paddle-up management reqeusted assistance from the accounting department in order to value the customer list intangible given the amount of assumptions that needed to be considered and their unfamiliarity with the income approach'. The following information was obtained from Stream Company's management: -Projected revenue related to this intangible for 2020; 1,000 - Projected annual revenue growth 5% -Cost of sales and operating expenses are estimated as % of revenue 80% -The effective income tax rate for the company 25% -Average remaining useful life of the asset; straight line depreciation 5 years -The appropriate risk adjusted discount rate 24% -Depreciation expense included in operating expenses for 2020 -Depreciation expense is projected to increase in line with revenue growth g) Additional management estimates related to the customer list intangible: 2020 2021 2022 Projected additional capital expenditures 50 51 Capital charge on use of contributory assets 60 60 60 9 50 The accounting department should complete the following steps in order to prepare the pro-forma consolidated balance sheet. Again, management will be using the stock acquisition method of accounting. a. Calculate the valuation of the intangible using the income approach method. (Round to nearest thousand) 10 points 2020 2021 2022 Revenue 1,000 1,050 1,103 Operating Expenses 800 840 882 Projected Operating income 200 221 Income tax expense 50 55 After-tax operating income 150 157 166 Depreciation expense Solution Condensed 210 53 9 10 En + U E F H K L Depreciation expense Capital expenditures Contributory assets capital charge Net cash flow Present value of net cash flows b. Prepare a schedule computing the goodwill / gain on acquisition Acquisition cost Book value Excess of acquisition cost over book value Excess of fair value over book value: 9 50 60 49 40 9 50 60 57 37 10 51 60 64 34 Total 110 10 poin Goodwill / Gain on Acquisition $ Please Retry! c. Next, record Paddle-up's entry to record the acquisition Description 10 points Debit Credit 6 d. Solution Condensed Accounts Taken From Use the drop-down to select ether or "R" for the 10 points 10 B D E H K M N Use the drop-down list to select either or "R" for the 10 points LLIURE Accounts Taken From Books Paddle-up Stream Dr (C1) Dr (Cr) $ Balance sheet accounts Consolidated Balances Dr (Cr) Dr Cr Use the drop-down list to select ether or "R" for the elimination enty Total $ Good Job! $ Good Job Good Job! $ Good Jobl Good Job e. Please enter the working paper eliminating entries below. 10 points + Equity Entry Debit E Credit Good Job! Revalue Entry Debit Credit R Good Job! Solution Condensed Good Job! f. Finally, present the pro-forma consolidated balance sheet at the date of acquisition Paddle-up Corporation and Subsidiary Pro-Forma Consolidated Balance Sheet Date of acquisition Assets Total assets $ Liabilities $ Total liabilities Stockholders' equity Total equity Total liabilities and equity Good Job