Question - Interpreting Pro Forma Balance Sheets under Purchase and Pooling
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Drew Company
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Pierson, Inc., Historical Cost-Based
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Historical Cost-Based
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Fair Value
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Current assets
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$70
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$60
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$65
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Land
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$60
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10
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10
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Buildings, net
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$80
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40
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50
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Equipment, net
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$90
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20
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40
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Total assets
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$300
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$130
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$165
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Current liabilities
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$120
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$20
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$20
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Sareholders' equity
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$180
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110
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Total liabilities and equity
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$300
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$130
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a. Prepare a pro forma combined balance sheet using purchase accounting. Note that Pierson pays $180 million in cash for Drew where the cash is obtained by using long term debt.
b. Discuss how differences between pooling and purchase accounting for acquisitions affect future reported earnings if the Pierson/Drew business combination.