Question

Problem 2-5 Balance sheets for Salt Company and Pepper Company on December 31, 2013, follow: Salt Pepper ASSETS Cash Receivables Inventories $97,130 118,880 138,730 711.180 $1,065,920 $183,620 248,880 241,372 1.121.360 $1,795,232 Plant assets $177,840 154,910 Total assets EQUITIES Accounts payable Mortgage payable Common stock, $20 par value Other contributed capital Retained earnings Total equities $245,513 190,000 870,400 253,410 235,909 $1,795,232 185,880 230,260 $1,065,920 Pepper Company tentatively plans to issue 27.540 shares of its $20 par value stock, which has a current market value of $39 per share nct 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 $865,900 and $288,400 in long-term 8% notes payable. Pepper Company's receivables include $55,450 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 $234,090 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).)

Answer 1

Answer Page: No 0 Poco-fouma balance sheet In the balance sheets, the as follows: adjustments are Adjustments - Cash = cash received on issue of common stock - cash payment . for acquisition it cash value of salto = (27540 x$39) – $865900 + 97130 e 1074060 - 865900 +97130 $ 305290 Plan assets = 711,180 + 234,090 - $945240 Goodwill - Price paid - (Ansets - Accounts payable -- Hostage payable . : + undervaluation + Pepper Co. payable] - (865900 + 2884001 - 1065920 – 144840. – 154910 +55450 +234090

balance sheet Adjustments $367760 Page. No Goodwill - 1154300 - 1022710 = $131590 1. Goodwill = $131590 Audited anabonents Pro-forma balance sheet Cash #183620 63052290 $ 488910 Receivables $248,880 $ 118,880 Inventories $241,372 $138,730 $ 380102 Plan assets $1121,360 $945270 $ 2066630 Goodwill $131590 $ 131590 Total assets $1495232 $1639760 $3434992 Accounts payable $245,513 $122390$ 367903 Notes payable , 8%. #288,400 $288400 Mortage payable $190,000 $154910 $344910 Common stock, f. 20 Par. $ 870,400 41044060 $1944460 $253410 Additional paid in capital $253,410 $235909 Retained earnings $ 235,909 Total liabilities & equity $ 1795,232 $1639760 63434992 $0