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Course Project: Corporate Consolidation Project

Overview

The Course Project is the Signature Assignment of ACCT$559$ and is compatible with the DeVry TechPath by requiring that

students use different technologies to present key deliverables related to the Course Project on consolidations and its related financial statements;

students use online research methods to capture data relevant to the Course Project; and

students use data analytic tools to make their recommendations to the management of the company.

Objective

The objective of the Corporate Consolidation Project is to provide students with an in$-$depth, hands$-$on experience examining a real$-$world scenario. Students will address the following primary areas.

Using the given pro forma financial statements of the parent company, develop a set of revised, forecasted, separate financial statements for the parent company that reflect the proposed acquisition.

Prepare a pro forma consolidation worksheet for the parent company and its proposed subsidiary.

Perform ratio analysis based on $($a$)$ the separate financial statements and $($b$)$ the consolidated financial statements of the parent company.

Articulate findings, conclusions, and a recommendation in a narrated PowerPoint presentation to the chairperson of the parent company's acquisition committee.

Guidelines

The Course Project is to be completed in two phases by each student.

Phase I $($requirement $1$ and $2),$ due Week $7(150$ points$)$: Adjust the Sun Company's $2024$ projected financial statements given in the scenario to reflect the proposed acquisition and prepare a pro forma consolidation worksheet.

Phase II $($requirement $3$ and $4),$ due Week $8(50$ points$)$: Compute ratios. Refer to the financial yardsticks as suggested by Sun Company to determine the attractiveness of the acquisition $($suggested financial yardsticks are available in the Additional Information$)$ to compute ratios. Submit your recommendation in a narrated PowerPoint presentation.

Please read the complete scenario $($including the table given in the scenario$)$ and the additional information before you answer the requirements. Use only the Excel solution templates provided in the Requirements section.

Submit the solution to each phase of the Course Project in the assignment section of the respective week.

Scenario

Sun Company is contemplating a tender offer to acquire $80\%$ of Moon Corporation's common stock. Moon's shares are currently quoted on the New York Stock Exchange at $$25$ per share. In order to have a reasonable chance of the tender offer attracting $80\%$ of Moon's stock, Sun believes it will have to offer at least $$30$ per share. If the tender offer is made and is successful, the purchase will be consummated on January $1,2024.$ Michael Jackson, the chairperson of Sun's acquisitions committee, has provided you with the projected $2024$ financial statements for Sun Company without the proposed acquisition and the $2024$ Projected Financial Statements of the Moon Company in the table below.

Sun Company's Projected Financial Statements for $2024$ Without Acquisition and Moon Company's Projected Financial Statements for $2024$

Sun $2024$ Projected Financial Statements Without Acquisition Moon $2024$ Projected Financial Statements

Sales $$275,000$ $$35,000$

Cost of goods sold $(174,000)(18,500)$

Operating expenses $(82,000)(4,500)$

Income before taxes $18,60012,000$

Income tax expense $(7,440)(3,600)$

Net income $11,1608,400$

Retained earnings, January $111,6604,800$

Add: net income $11,1608,400$

Less: dividends $(5,000)(1,500)$

Retained earnings, December $3117,82011,700$

Cash $20,1707,500$

Accounts receivable $13,7754,300$

Inventory $12,8754,000$

Property, plant, and equipment $228,00050,000$

Accumulated depreciation $(176,600)(9,000)$

Total assets $98,22056,800$

Sun $2024$ Projected Financial Statements Without Acquisition Moon $2024$ Projected Financial Statements

Accounts payable $13,4007,000$

Common stock$*65,00030,000$

Paid$-$in capital in excess of par $2,0008,100$

Retained earnings $17,82011,700$

Total liabilities and stockholders' equity $284,200229,500$

$*$ Parent: $$12\mathrm{.}50$ par; Subsidiary: $$75$ par $98,22056,800$

Additional Information

As of January $1,2024,$ all of Moon Company's assets and liabilities are fairly valued except for machinery with a book value of $$5,000,$ an estimated fair value of $$6,000,$ and a $5-$year remaining useful life. Assume that straight$-$line depreciation is used to amortize any revaluation increment.

No transactions between these companies occurred prior to $2024.$ Regardless of whether they combine, Sun Company plans to buy $$15,000$ of merchandise from Moon Company in $2024$ and will have $$1,200$ of these purchases remaining in inventory on December $31,2024.$ In addition, Moon is expected to buy $$900$ of merchandise from Sun in $2024$ and to have $$150$ of these purchases in inventory on December $31,2024.$ Sun and Moon price their products to yield a $20\%$ and $25\%$ markup on cost$,$ respectively.

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