Prepare a consolidated balance sheet january 1 2012 -


As discussed in today's meeting, Paper Inc. 's Board of Directors has requested a set of pro-forma financial statements for the proposed acquisition of Scissor Company.

For the past several years Paper Inc's Executive Management Team hasreceived continued pressure from its investors for their lack of growth (markets share, revenue, and profits). On May 1, 2012 the Chief Executive Officer, Chief Operating Officer, and the Chief Financial Officer all resigned under duress (pressured by Board of Directors to resign).

For the past twelve months, Paper Inc.'s Board of Directors and Executive Management Team had been in discussions with Scissor Company's Board of Directors about a possible merger (Paper Inc. acquiring 75% of Scissor Company). The Paper Inc.Board has determined that this acquisition would be in the best interest of its shareholders.

The Board has requested that the Accounting Department provide pro-forma financial statements (income statement, statement of retained earnings, and balance sheet) for the proposed consolidated company. In addition, the Board has asked for a detailed explanation on how the consolidation process works. They specifically requested a walk-through of the consolidation work paper.

Detailed Request:

1.       Prepare a consolidated balance sheet (January 1, 2012) - assuming the acquisition had taken place on January 1, 2012 (remember to provide work paper detail).

2.       Prepare a pro-forma income statement, statement of retained earnings, and balance sheet (assuming the acquisition had taken place on January 1, 2012) as of December 31, 2012 (remember to show work paper detail using the 3-section format). Apply the cost method.

3.       Document all general ledger journal entries (REAL Entries) that would take place using the assumption above.

Base Data:

As of 1/1/12 the balance sheets for Paper Inc. (acquirer) and Scissor Company (acquired) immediately prior to the combination were as follows:

Balance Sheet as of 12/31/11

 

 

Scissor Company

 

Paper Inc.

Scissor Company

 

Fair Value

Cash

$750,000

$230,000

 

Same as BV

Current Assets

207,000

6,000

 

Same as BV

PPE (net)

813,000

54,000

 

Same as BV

Land

150,000

25,000

 

$50,000

Total

1,920,000

315,000

 

 

 

 

 

 

 

Liabilities

850,000

90,000

 

Same as BV

Common Stock, $20 par

825,000

120,000

 

 

APIC

109,000

30,000

 

 

Retained Earnings

136,000

75,000

 

 

Total

1,920,000

315,000

 

 

 

Key Data and Assumptions:

  • As of 12/31/11 FV of Scissor Company net assets is equal to BV with the exception of Land, which has a FV of $50,000. On January 1, 2012, Paper Inc. common stock had a fair value of $30 per share. It is expected that Paper Inc.'s common stock will have a fair value of $30 per share on 12/31/2012.
  • Assume that Paper Inc. issues 9,600 shares of its $20 par value common stock for 75% of Skins outstanding stock on January 1, 2012.
  • Assume that the income statements for Paper Inc. and Scissor are the following in fiscal year 2012. In addition, assume Paper Inc. had dividends declared of $40,000 and Scissor Company declared $20,000.

 

Income Statement

 

 

 

 

 

 

Paper Inc.

Scissor

Revenue

 

 

$900,000

$350,000

Dividend Income

 

 

15,000

-

 

Total revenues

 

915,000

350,000

 

 

 

 

 

COGS

 

 

550,000

150,000

Operating Expenses

 

 

150,000

100,000

 

 

 

700,000

250,000

 

Net Income

 

215,000

100,000

 

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Accounting Basics: Prepare a consolidated balance sheet january 1 2012 -
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