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Model03-01AInitialFinancialDataforMergerAccountingInitialBalanceSheetsAcquiringFirmTargetFirmCurrentAssets$210,000$110,000Land50,00020,000PlantandEquipment200,000100,000Less:AccumulatedDepr.60,00030,000NetPlant&Equipment140,00070,000GoodwillTotalAssets$400,000$200,000Interest-BearingDebt40,00020,000OtherCurrentLiabilities60,00030,000Long-TermDebt60,00030,000TotalLiabilities160,00080,000CommonStock(Par$4)80,000(Par$2)40,000Paid-InCapital100,00050,000RetainedEarnings60,00030,000Shareholders'Equity$240,000$120,000TotalClaimsonAssets$400,000$200,000InitialIncomeStatementsSales$800,000$400,000OperatingCostsLessDepr.andAmort.703,333351,667EBITDA*96,66748,333Depreciation(D)**20,00010,000AmortizationofGoodwill(A)NetOperatingIncome(NOI)=EBIT76,66738,333InterestCost@10%10,0005,000EarningsBeforeTaxes66,66733,333Taxes@40%26,66713,333NetIncome$40,000$20,000*EarningsBeforeInterest,Taxes,DepreciationandAmortization.**Ten-yearlife,so10%ofthegrossplantandequipmentaccount.M-3Model03-01BAccountingforaCombination*AcquiringFirmTargetFirmAdjustmentPoolingConsolidated,PoolingDebitCreditCurrentAssets$210,000$110,000$320,000NetFixedAssets190,00090,000280,000TotalAssets$400,000$200,000$600,000CurrentLiabilities$100,000$50,000$150,000Long-TermDebt60,00030,00090,000CommonStock80,00040,000$40,000(1)160,000Paid-InCapital100,00050,000$40,000(1)110,000RetainedEarnings60,00030,00090,000Shareholders'Equity(SHE)240,000120,000360,000TotalClaimsonAssets$400,000$200,000$40,000$40,000$600,000*Accountingtextsuseaninvestmentaccountamongotherintermediatesteps.Inproxystatementstoshareholdersinconnectionwithproposedtransactions,theformusedisasshownhere.(1)Issued20,000sharesat$4partobuythetargetfirmtogiveatotalof40,000sharesatparof$4,totaling$160,000.SummingtheCommonStockaccountsofAandTgives$120,000,soanadditionalcreditof$40,000isrequired.TheoffsettingdebitistothePaid-InCapitalaccount(i.e.,Paid-InCapitalservesasthe“plug”).M-4Model03-01CPurchaseAccountingAllExcesstoDepreciableAssetsAcquiringFirmTargetFirmAdjustmentPurchaseConsolidatedPurchaseAllExcesstoDebitCreditDepreciableAssetsCurrentAssets$210,000$110,000$320,000Land50,00020,00070,000PlantandEquipment200,000100,000480,000(2)30,000(2)750,000Less:AccumulatedDepr.60,00030,00030,000(2)60,000NetPlantandEquipment140,00070,000690,000GoodwillTotalAssets$400,000$200,000$1,080,000Interest-BearingDebt40,00020,00060,000OtherCurrentLiabilities60,00030,00090,000Long-TermDebt60,00030,00090,000TotalLiabilities160,00080,000240,000CommonStock80,00040,00040,000(1)80,000(3)160,000Paid-InCapital100,00050,00050,000(1)520,000(4)620,000RetainedEarnings60,00030,00030,000(1)60,000Shareholders'Equity(SHE)240,000120,000840,000TotalClaimsonAssets$400,000$200,000$630,000$630,000$1,080,000(1)Paid$30eachfor20,000shares=$600,000.EliminateSHEofTargetof$120,000.The$600,000less$120,000equals$480,000toAssetWriteupsortoGoodwillorsomecombinationofthetwo.(2)Thedifferencebetweenthemarketvalueof$600,000paidandtheeliminationofthenetworthaccountsofthetargetis$480,000.Thegrossplantandequipmentaccountisdebited$480,000andtheaccumulateddepreciationaccountforthetargetiseliminatedbyadebitof$30,000withanoffsettingcreditof$30,000.Intheconsolidatedcolumn,grossplantandequipmentis$200,000plus$100,000plusanet$450,000,totaling$750,000.Theaccumulateddepreciationisonlythatoftheacquiringfirmintheamountof$60,000.Netplantandequipmentis,therefore,$690,000.(3)Thecommonstockaccountoftheacquiringfirm(A)was20,000shareswithaparvalueof$4,totaling$80,000.Aissued20,000newsharesataparof$4tobuyT.Theconsolidatedcommonstockaccountwould,therefore,be$160,000,showninthecolumnfortheconsolidatedcompany.(4)Thetotaldebitswere$600,000.Acreditof$80,000wasmadetotheCommonStockaccount.Soitisnecessarytomakeanadditionalcreditof$520,000tothePaid-InCapitalaccount.M-5Model03-01DPurchaseAccountingAllExcesstoGoodwillAcquiringFirmTargetFirmAdjustmentPurchaseConsolidatedPurchaseAllExcesstoDebitCreditGoodwillCurrentAssets$210,000$110,000$320,000Land50,00020,00070,000PlantandEquipment200,000100,00030,000(2)270,000Less:AccumulatedDepr.60,00030,00030,000(2)60,000NetPlantandEquipment140,00070,000210,000Goodwill480,000(1)480,000TotalAssets$400,000$200,000$1,080,000Interest-BearingDebt40,00020,00060,000OtherCurrentLiabilities60,00030,00090,000Long-TermDebt60,00030,00090,000TotalLiabilities160,00080,000240,000CommonStock80,00040,00040,000(1)80,000(3)160,000Paid-InCapital100,00050,00050,000(1)520,000(4)620,000RetainedEarnings60,00030,00030,000(1)60,000Shareholders'Equity(SHE)240,000120,000840,000TotalClaimsonAssets$400,000$200,000$630,000$630,000$1,080,000(1)Paid$30for20,000shares=$600,000.EliminateSHEofTargetof$120,000.The$600,000less$120,000equals$480,000toGoodwill.(2)Theaccumulateddepreciationaccountofthetargetfirmiseliminatedbyadebitwithanoffsettingcreditof$30,000.(3)Thecommonstockaccountoftheacquiringfirm(A)was20,000shareswithaparvalueof$4,totaling$80,000.Aissued20,000newsharesataparof$4tobuyT.Theconsolidatedcommonstockaccountwould,therefore,be$160,000,showninthecolumnfortheconsolidatedcompany.(4