Your supervisor asks you to analyze the potential purchase

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Reference no: EM13381537

Your supervisor asks you to analyze the potential purchase of Drew Company by your firm, Pierson, Inc. You are provided the following information (in million):

Pierson,Inc. Drew COMPANY

Historical Historical Fair

Cost Based Cost Based Value

Current Assets $70 $60 $65

Land 60 10 10

Buildings, net 80 40 50

Equipment, net 90 20 40

Total Assets $300 $130 $165

Current Liabilities $120 $20 $20

Shareholders' equity 180 110 -----

Total liabilities and equity $300 $130

Required:

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.

Reference no: EM13381537

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