Moon company is contemplating the acquisition of Yount, Inc., on January 1, 2011. If Moon acquires Yount, it will pay $730,000 in cash to Yount and acquisition costs of $20,000. The January 1, 2011, balance sheet of Yount, Inc., is anticipated to be as follows:
Assets Liabilities
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) Total L & E $390,000
Total assets $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 2011 are as follows:
Combined Sales $200,000
Combined Cost of Goods Sold $120,000
(including Younts beginning inventory,
at book value, which will be sold in 2011)
Other expenses not including depreciation of Yount assets $25,000
Depreciation on Yount fixed assets is straight-line using a 20-year life with not salvage value.
Prepare a value analysis for the acquisition and record the acquisition. Prepare a pro forma income statement for the combined firm for 2011. Show supporting calculations for consolidated income. Ignore tax issues.