Income after a purchase. On December 31, 20X1, Panama Corporation acquired the net assets of Keyes Corporation. On the date of acquisition, book values agreed with fair values of the net assets, with the following exceptions:
|
Book Value |
Fair Value |
|
|
Inventory |
$100,000 |
$125,000 |
|
Land |
200,000 |
250,000 |
|
Equipment (net) |
350,000 |
380,000 |
|
Buildings (net) |
400,000 |
475,000 |
Despite these markups, there was still an excess of purchase price over fair values, and goodwill of $75,000 was recorded by Panama Corporation. The following pro forma income statement for 20X2 was prepared just prior to the acquisition:
|
Panama |
Keyes |
|
|
Sales |
$400,000 |
$300,000 |
|
Less: Cost of goods sold |
200,000 |
140,000 |
|
Operating expenses |
100,000 |
85,000 |
|
Other expenses |
30,000 |
20,000 |
|
Net income |
$70,000 |
$55,000 |
Prepare an adjusted 20X2 pro forma income statement for the combined company. Fixed assets are depreciated using the straight line method over a 20 year life.