Part A. Garman International wants to expand its operations and decides to acquire the net assets of Iris Company as of January 1, 2012. Garman issues 10,000 shares of its $5 par value common stock for the net assets of Iris. Garman’s stock is selling for $27 per share. In addition, Garman pays $10,000 in acquisition costs. A balance sheet for Iris Company as of December 31, 2011, is as follows:

In reviewing Iris’s balance sheet and in consulting with various appraisers, Garman has determined that the inventory is understated by $2,000, the land is understated by $10,000, the building is understated by $15,000, and the copyrights are understated by $4,000. Garman has also determined that the equipment is overstated by $6,000, and the patent is overstated by $5,000.
The investments have a fair value of $33,000 on December 31, 2011, and the amount of goodwill (if any) must be determined.
Required
Part A. Using the information above, do value analysis, and record the acquisition of Iris Company on Garman International’s books on January 1, 2012.
Part B. Garman International wishes to estimate its pro forma disclosure of operations for 2012 resulting from acquisition of Iris. Pro forma disclosure includes revenue and net income.
Projected income statements for 2012 are as follows:

Garman International estimates that the following amount of depreciation and amortization should be taken on the revalued assets of Iris Company:
Building depreciation .... . .. .. .. .. . . . . . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . $4,000
Equipment depreciation .. ... .. .... .. . . ... .. .... .. .. . . . .. . . .. .. . .... .. .. .. . 5,000
Patent amortization .. .... . .. .. .. .. . . . . . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . 1,200
Copyright amortization... . .. .. .. .. . . . . . .. .... .. .... . .. . . . . .. . . . .. .. .... .. . 2,600
Using the above information prepare a pro forma income statement for Garman International combined with Iris Company for the year ended December 31, 2012. Schedule your

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Current liabilities: Current assets: Accounts receivable $15,000 Accounts payable $ 22,000 2,000 38,000 nterest payable 12,000 Total current assets $65,000 Tol current liabilities... $ 24,000 19,000 Fixed assets: Land. Building. Equipment. Other liabilities: $30,000 70,000 Long-term notes payable 40,000 156,000 T abilities 64,000 Total fixed assets.... Intangibles: $17,000 22,000 8,000 Stockholders' equity: Common stock Paid-in capital in excess of par Retained earnings 40,000 120,000 63,000 Copyrights Goodwill Total intangibles Total assets. 47,000 q. $287,000 o liabilities and equity. 223,000 $287,000 2 Income Statement Accounts International Company $(350,000] 147,000 $(203,0001 100,000 50,000 12,500 1,000 . 163,500 ...$ (39,500] (125,000) 55,000 $ 70,000) $ 20,000 30,000 8,600 3,900 62,500 7,500) Sales Revenue Cost of Goods Sold .. Selling Expenses Administrative Expenses Depreciation Expense Amortization Expense Total Operating Expenses Nonoperating Revenues and Expenses: Interest Expense (12,000 $ (51,500] 20,600 3,000 4,500) 19,000) 3,600 $15,400) Provision for Income Taxes (40% rate). . . . . . Net Income (30,900]