Download Guided ACCT 559 Corporate Consolidation Project Milestone 1 2 and 3
2017 PARENT ASSUMPTIONS | |||||||||||||||||
| 1 | Sales will increase by 10% in 2017 | ||||||||||||||||
| 2 | All sales will be on account | ||||||||||||||||
| 3 | Accounts receivable will be 5 percent lower on 12/31/17 than on 12/31/16 | ||||||||||||||||
| 4 | The cost of goods sold will increase by 9% in 2017 | ||||||||||||||||
| 5 | All purchases of merchandise will be on account | ||||||||||||||||
| 6 | Accounts payable are expected to be 50,500 in 12/31/2017 | ||||||||||||||||
| 7 | Inventory will be 3% higher in 2017 than in 2016 | ||||||||||||||||
| 8 | Straight-line depreciation is used for all fixed assets | ||||||||||||||||
| 9 | No fixed assets will be disposed of during 2017. Annual depreciation on existing assets is 40,000 per year | ||||||||||||||||
| 10 | Equipment was purchased on 1/1/17 for $48,000 cash; 10-year life and no salvage | ||||||||||||||||
| 11 | Operating expenses other than depreciation will increase by 14% in 2017 | ||||||||||||||||
| 12 | All operating expenses other than depreciation will be paid in cash | ||||||||||||||||
| 13 | The parent’s income tax rate is 40%; taxes are paid in 4 payments, the 15th of April, June, September & December | ||||||||||||||||
| 14 | The parent will continue the $2.50 per share annual cash dividend on its common stock | ||||||||||||||||
ACQUISITION ASSUMPTIONS | |||||||||||||||||
| 15 | If the tender offer is successful;, the Parent will finance the acquisition by issuing 170,000 of 6% non-convertible bonds at par on Jan 1 ,2017. Bonds pay interest on July 1 2017 and semiannually thereafter each January 1 and July 1 until maturity on January 1, 2027. | ||||||||||||||||
| 16 | The acquisition will be accounted for as a purchase and the Parent will account for the investment using the equity method. Direct costs for the tender offer of $2,000 were paid in cash by parents in 2017. | ||||||||||||||||
| 17 | As of January 1, 2017, all of the subsidiary’s assets and liabilities are fairly valued except for machinery with a book value of $8,000, an estimated fair value of $9,500, and a 5-year remaining useful life. Straight-line depreciation is used to amortize any revaluation increment. | ||||||||||||||||
| 18 | No transactions between these companies occurred prior to 2017. Parent plans to buy 50,000 of merchandise from a subsidiary in 2017 and will have 3,600 in remaining inventory on Dec 31, 2017. The subsidiary is expected to buy 2,400 of merchandise from a parent in 2017 and to have 495 in inventory on Dec 31, 2017. Parent and subsidiary price their products to yield a 65 percent and 80 percent markup on cost, respectively. | ||||||||||||||||
| 19 | The parent intends to use three financial yardsticks to determine the financial attractiveness of the combination. 1) Parent wishes to acquire only if 2017 consolidated earnings per share will be at least as high as the earnings per share Parent would report without combination. 2) Parent will consider the combination unattractive if it will cause the consolidated current ratio to fall below 2 to 1. 3) ROE must remain above 20 percent for the combined equity. | ||||||||||||||||
| 20 | If the financial yardsticks above and the nonfinancial aspects are appealing, then the tender offer will be made. If the objectives are not met, the acquisition will either be restructured or abandoned. | ||||||||||||||||
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