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Exercise 2-2 The balance sheets of Petrello Company and Sanchez Company as of January 1, 2014, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of 1/2 share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $50; Sanchez, $25. The fair values of Sanchez Company's assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $757,310. Cash Receivables Inventories Plant and equipment (net) Total assets Petrello $462,000 436,750 2,029,200 3,614,200 $6,542,150 Sanchez $216,900 221,690 218,710 766,200 $1,423,500 Current Liabilities Common stock ($16 par value) Other contributed capital Retained earnings Total equities $1,104,800 3,539,150 361,700 1,536,500 $6,542,150 $295,870 800,000 -0- 327,630 $1,423,500 Prepare a balance sheet for Petrello Company immediately after the merger. (List assets in order of liquidity.) PETRELLO COMPANY Balance Sheet January 1, 2014 Assets Liabilities and Stockholders' Equity Cash Common Stock Goodwill Inventories Liabilities Other Contributed Capital Plant and Equipment (net) Receivables Retained Earnings