LBO does not meet 80% test. Old Time Company has the following balance sheet on January 1, 20X1, when it is the target of a leveraged buyout by Hercules Corporation:
|
Assets |
Stockholders’ Equity |
||
|
Cash |
$ 50,000 |
Common stock ($5 par, 10,000 |
|
|
Inventory |
100,000 |
shares) |
$ 50,000 |
|
Property and plant |
200,000 |
Paid-in capital in excess of par |
160,000 |
|
Total assets |
$350,000 |
Retained earnings |
140,000 |
|
Total equity |
$350,000 |
The property and plant have a fair value of $230,000.
Hercules Corporation incorporated by issuing 3,000 shares of $10 par common stock for $40 each. The company also borrowed $160,000 from long-term lenders. The leveraged buyout was accomplished as follows:
|
1,000 |
shares exchanged on a 1-to-1 basis with continuing members of the old control group The equityadjusted cost per share for these shares was $38 These shares do not need the criteria to be Included in the fair value block |
|
2,000 |
shares exchanged on a 1-to-1 basis with noncontrol group members |
|
7,000 |
shares of Old Time purchased from noncontrol group members for $40 per share |
Prepare the balance sheet of Hercules Corporation immediately after the leveraged buyout. Provide supporting calculations in good form.