Balance sheets for Salt Company and Pepper Company on December 31, 2018, follow:

Pepper Company tentatively plans to issue 30,000 shares of its $20 par value stock, which has a current market value of $37 per share net of commissions and other issue costs. Pepper Company then plans to acquire the assets and assume the liabilities of Salt Company for a cash payment of $800,000 and $300,000 in long-term 8% notes payable. Pepper Company?s receivables include $60,000 owed by Salt Company. Pepper Company is willing to pay more than the book value of Salt Company assets because plant assets are undervalued by $215,000 and Salt Company has historically earned above-normal profits.

Required:

Prepare a pro forma balance sheet showing the effects of these planned transactions.

Transcribed Image Text:

Salt Pepper ASSETS $ 180,000 Cash 95,000 Receivables 117,000 230,000 Inventories 134,000 231,400 Plant assets 690,000 1,236,500 Total assets $1,036,000 $1,877,900 EQUITIES $ 255,900 Accounts payable $ 180,000 Mortgage payable 180,000 152,500 Common stock, $20 par value 340,000 900,000 Other contributed capital Retained earnings 179,500 270,000 184,000 272,000 Total equities $1,036,000 $1,877,900