exercise sa1 2 lo 3 lbo does not meet 80 test old time company has the fol lowing ba 1405182

Exercise SA1-2 (LO 3) LBO does not meet 80% test. Old Time Company has the fol- lowing balance sheet on January 1, 20X1, when it is the target of a leveraged buyout by Hercules Corporation:

 

Assets		Stockholders’ Equity
Cash . . . . . . . . . . . . . . . . . . . . . . . . .	$  50,000	Common stock ($5 par, 10,000
Inventory . . . . . . . . . . . . . . . . . . . . . .	100,000	shares). . . . . . . . . . . . . . . . . . . . . .	$  50,000
Property and plant . . . . . . . . . . . . . . .	200,000	Paid-in capital in excess of par . . . . .	160,000
		Retained earnings . . . . . . . . . . . . . . .	140,000
Total assets. . . . . . . . . . . . . . . . . . .	$350,000	Total equity . . . . . . . . . . . . . . . . . .	$350,000

 

                                                                                                                                                                                                         

 

The property and plant have a fair value of $230,000.

Hercules Corporation incorporated by issuing 3,000 shares of $10 par common stock for

$40 each. The company also borrowed $160,000 from long-term lenders. The leveraged buy- out was accomplished as follows:

 

1,000              shares exchanged on a 1-to-1 basis with continuing members of the old control group. The equity- adjusted cost per share for these shares was $38. These shares do not need the criteria to be included in the fair value block.

2,000              shares exchanged on a 1-to-1 basis with noncontrol group members.

7,000              shares of Old Time purchased from noncontrol group members for $40 per share.

 

Prepare the balance sheet of Hercules Corporation immediately after the leveraged buyout.

Provide supporting calculations in good form.