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Question - Interpreting Pro Forma Balance Sheets under Purchase and Pooling
Drew Company
Pierson, Inc., Historical Cost-Based
Historical Cost-Based
Fair Value
Current assets
$70
$60
$65
Land
10
Buildings, net
$80
40
50
Equipment, net
$90
20
Total assets
$300
$130
$165
Current liabilities
$120
$20
Sareholders' equity
$180
110
Total liabilities and equity
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.
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