Note illustrations for this assignment in the textbook: 8.19. Effect of an Acquisition on the Post acquisition Balance Sheet and Income Statement.

Ormond Co. acquired all of the outstanding common stock of Daytona Co. on January 1, Year 1. Ormond Co. gave shares of its common stock with a fair value of $312 million in exchange for 100% of the Daytona Co. common stock. Daytona Co. will remain a legally separate entity after the exchange, but Ormond Co. will prepare consolidated financial statements with Daytona Co. each period. Exhibit 8.25 presents the balance sheets of Ormond Co. and Daytona Co. on January 1, Year 1, just after the acquisition. The following information applies to Daytona Co.:

The market value of Daytona Co.s fixed assets exceeds their book value by $50 million.

Daytona Co. owns a patent with a market value of $40 million.

Daytona Co. is a defendant in a lawsuit that it expects to settle during Year 1 at a cost of $25 million. The firm carries no insurance against such lawsuits. If permitted, Ormond Co. wants to establish an acquisition reserve for this lawsuit.

Daytona Co. has an unrecognized and unfunded retirement health care benefits obligation totaling $20 million on January 1, Year 1.

Exhibit 8.25. Ormond Co. and Daytona Co. Balance Sheets on January 1, Year 1 (amounts in millions) (Problem 8.19)

Required

Prepare a consolidated balance sheet for Ormond Co. and Daytona Co. on January 1, Year 1. Ignore deferred tax effects. (A consolidated worksheet is not required but recommended.)

Exhibit 8.26 presents income statements and balance sheets taken from the separate-company books at the end of Year 1. The following information applies to these companies:

The fixed assets of Daytona Co. had an average remaining life of five years on January 1, Year 1. The firms use the straight-line depreciation method.

The patent of Daytona Co. had a remaining life of 10 years on January 1, Year 1.

Daytona Co. settled the lawsuit during Year 1 and expects no further liability.

Daytona Co. will amortize and fund its retirement health care benefits obligation over 20 years. It included $1 million in operating expenses during Year 1 related to amounts unrecognized and unfunded as of January 1, Year 1.

The test for goodwill impairment indicates that no impairment charge is necessary for Year 1. Prepare a consolidated income statement for Year 1 and a consolidated balance sheet on December 31, Year 1. (A consolidated worksheet is not required, but it will be illustrated in the solution.)

Exhibit 8.26. Ormond Co. and Daytona Co. Income Statement and Balance Sheet for Year 1 (in millions) (Problem 8.19)

we need to fill this

Effect on an Acquisition on the Postacquisition Balance Sheet Income Statement.	Amount
Fair value at date of acquisition
Book value at date of acquisition
Excess
Allocated to:
Fixed assets......................................................
Patent ...............................................................
Accounts payable and accruals.......................
Post-employment benefits ...............................................................................
Subtotal
Goodwill
8.19 (a)
Date of Acquisition Consolidated	Ormond Company	Daytona Company	Eliminations	Consolidated
Worksheet (January 1, Year 1) Balance Sheet (amounts in millions)
Cash...........................................................
Accounts receivable ..................................
Investment in Daytona Company..............
Fixed assets (net) ......................................
Patent ........................................................
Deferred tax asset......................................
Goodwill ...................................................
Total assets.............................................
Accounts payable and accruals .................
Long-term debt..........................................
Deferred tax liability .................................
Other noncurrent liabilities .......................
Common stock ..........................................
Retained earnings......................................
Total liabilities and shareholders & equity
Revenues, gains, and net income are in parentheses to indicate that their signs are opposite those of expenses and losses; that is, they are credits for those in- terpreting the worksheet from the accountants traditional debit/credit approach. Liabilities and shareholders equity accounts are in parentheses to indicate that they are claims against assets; again, they are credits in the traditional debit/ credit framework.
8.19 (b)
Consolidation Worksheet for Ormond Company and Daytona Company Year 1 (amounts in millions)
Consolidated Worksheet Income Statement (Year 1)	Ormond Company	Daytona Company	Eliminations	Consolidated
Sales
Equity in earnings of Daytona Company..
Operating expense
interest expense
Loss (Gain) on lawsuit
Income tax expense
Net income
	Ormond Company	Daytona Company	Eliminations	Consolidated
Balance Sheet (12/31/Year 1)
Cash...........................................................
Accounts receivable ..................................
Investment in Daytona Company..............
Fixed assets ...............................................
Patent ........................................................
Deferred tax asset......................................
Goodwill ...................................................
Total assets.............................................
Accounts payable and accruals .................
Long-term debt..........................................
Deferred tax liability .................................
Other noncurrent liabilities .......................
Common stock ..........................................
Retained earnings......................................
Total liabilities and shareholders & equity

Exhibit Consolidation Worksheet at December 31, Year 2 (in millions) Exhibit 2 Ormond Co. and Daytona Co. Balance Sheets on January 1, Year 1 (amounts in millions) (Problem 8.19) Exhibit 8.26 Ormond Co. and Daytona Co. Income Statement and Balance Sheet for Year 1 (in millions) (Problem 8.19)