Problem 2-5

Balance sheets for Salt Company and Pepper Company on December 31, 2013, follow:

		Salt		Pepper
ASSETS
Cash		$94,130		$183,600
Receivables		120,810		247,690
Inventories		123,290		222,003
Plant assets		692,920		1,193,210
Total assets		$1,031,150		$1,846,503
EQUITIES
Accounts payable		$168,500		$235,428
Mortgage payable		138,120		181,990
Common stock, $20 par value		370,860		891,900
Other contributed capital		173,000		258,480
Retained earnings		180,670		278,705
Total equities		$1,031,150		$1,846,503

Pepper Company tentatively plans to issue 31,750 shares of its $20 par value stock, which has a current market value of $36 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 $848,800 and $324,600 in long-term 8% notes payable. Pepper Companys receivables include $65,490 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 $225,930 and Salt Company has historically earned above-normal profits.

Prepare a pro forma balance sheet showing the effects of these planned transactions. (If an amount reduces the account balance then enter with negative sign preceding the number e.g. -5,125 or parentheses e.g. (5,125).)

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		$183,600		$		$
Receivables		247,690
Inventories		222,003
Plant Assets		1,193,210
Goodwill		0
Total Assets		1,846,503				$
Accounts Payable		235,428				$
Notes Payable, 8%		0
Mortgage Payable		181,990
Common Stock, $20 par		891,900
Additional Paid-in Capital		258,480
Retained Earnings		278,705
Total Liabilities and Equity		1,846,503				$