Condensed balance sheet data for Moran Corporation and Napolitano Corporation as of January 1, Year 8, follow (amounts in millions):

The shares of Moran Corporation currently sell on the market for $40 per share. Moran Corporation wishes to acquire all of the common stock of Napolitano Corporation as of January 1, Year 8. Moran Corporation will issue at par 10 percent, 20-year bonds for $1,200. It will use the proceeds to acquire all of the common stock of Napolitano Corporation. The firms will account for the transaction using the purchase method for financial reporting. This transaction is a taxable exchange to the shareholders of Napolitano Corporation but a nontaxable exchange for Napolitano Corporation.
Required
a. Prepare a pro forma balance sheet as of January 1, Year 8, accounting for the transaction using the purchase method of accounting. The income tax rate is 40 percent.
b. Before considering the effects of the acquisition, Moran Corporation projects net income of $300 and Napolitano Corporation projects net income of $200 for Year 8. Compute the amount of pro forma net income for Year 8 for the merged firm. Both firms use a LIFO cost-flow assumption for inventories and do not expect to liquidate a LIFO layer during Year 8. Depreciable assets have a ten-year remaining life as of January 1, Year 8. Both firms use the straight-line depreciation method. Assume that the test for goodwill impairment indicates that no impairment charge is necessary for Year 8.

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Book Values Moran Napolitano Market Values Napolitano Current Assets Fixed Assets Goodwill $1,200 1,800 $ 800 1,200 900 1,500 $2,000 5600 1,000 400 $2,000 Total Assets 3000 $1,000 S 600 1,000 600 Total Equities . .. . $3,000