Pro forma income after a purchase. Molitor Company is contemplating the acquisition of Yount Inc. on January 1, 20X1. If Molitor proceeded to acquire Yount, it would pay $730,000 in cash to Yount and direct acquisition costs of $20,000. The January 1, 20X1 balance sheet of Yount Inc. is anticipated to be as follows:
|
Yount Inc. |
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|
Assets |
Liabilities and Equity |
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|
Cash equivalents |
$100,000 |
Current liabilities |
$30,000 |
|
Accounts receivable |
120,000 |
Long term liabilities |
165,000 |
|
Inventory |
50,000 |
Common stock ($10 par) |
80,000 |
|
Depreciable fixed assets |
200,000 |
Retained earnings |
115,000 |
|
Accumulated depreciation |
80,000 |
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|
Total assets |
$390,000 |
Total liabilities and equity |
$390,000 |
Fair values agree with book values except for the inventory and the depreciable fixed assets, which have fair values of $70,000 and $400,000, respectively. Your projections of the combined operations for 20X1 are as follows:
|
Combined sales |
$200,000 |
|
Combined cost of goods sold, including beginning inventory of Yount at book value which will be sold in 20X1 |
120,000 |
|
Other expenses not including depreciation of Yount assets or goodwill amortization |
25,000 |
Depreciation on Yount fixed assets is straight line using a 20 year life.
Required
1. Prepare a zone analysis for the purchase, and record the purchase.
2. Prepare a pro forma income statement for the combined firm for 20X1. Show supporting calculations for consolidated income. Ignore tax issues.