accounting-As discussed in today’s meeting, Paper Inc.

As discussed in today’s meeting,
Paper Inc. ‘s Board of Directors has requested a set of pro-forma financial statements
for the proposed acquisition of Scissor Company.

For the past several years Paper
Inc’s Executive Management Team hasreceived continued pressure from its
investors for their lack of growth (markets share, revenue, and profits). On
May 1, 2012 the Chief Executive Officer, Chief Operating Officer, and the Chief
Financial Officer all resigned under duress (pressured by Board of Directors to
resign).

For the past twelve months, Paper
Inc.’s Board of Directors and Executive Management Team had been in discussions
with Scissor Company’s Board of Directors abouta possible merger (Paper Inc. acquiring 75% of Scissor Company).
The Paper Inc.Board has determined that this acquisition would be in the best
interest of its shareholders.

The Board has requested that the
Accounting Department provide pro-forma financial statements (income statement,
statement of retained earnings, and balance sheet) for the proposed
consolidated company. In addition, the Board has asked for a detailed
explanation on how the consolidation process works. They specifically requested
a walk-through of the consolidation work paper.

Detailed Request:

1.
Prepare a consolidated balance sheet (January 1,
2012) – assuming the acquisition had taken place on January 1, 2012 (remember
to provide work paper detail).

2.
Prepare a pro-forma income statement, statement of
retained earnings, and balance sheet (assuming the acquisition had taken place
on January 1, 2012) as of December 31, 2012 (remember to show work paper detail
using the 3-section format).
Apply the cost method.

3.
Document all general ledger journal entries (REAL
Entries) that would take place using the assumption above.

Base Data:

As of 1/1/12 the balance sheets
for Paper Inc. (acquirer) and Scissor Company (acquired) immediately prior to
the combination were as follows:

Balance Sheet as of 12/31/11			Scissor Company
	Paper Inc.	Scissor Company		Fair Value
Cash	$750,000	$230,000		Same as BV
Current Assets	207,000	6,000		Same as BV
PPE (net)	813,000	54,000		Same as BV
Land	150,000	25,000		$50,000
Total	1,920,000	315,000
Liabilities	850,000	90,000		Same as BV
Common Stock, $20 par	825,000	120,000
APIC	109,000	30,000
Retained Earnings	136,000	75,000
Total	1,920,000	315,000

Key Data and Assumptions:

·
As of 12/31/11 FV of Scissor Company net assets is
equal to BV with the exception of Land, which has a FV of $50,000. On January
1, 2012, Paper Inc. common stock had a fair value of $30 per share. It is
expected that Paper Inc.’s common stock will have a fair value of $30 per share
on 12/31/2012.

·
Assume that Paper Inc. issues 9,600 shares of its
$20 par value common stock for 75% of Skins outstanding stock on January 1,
2012.

·
Assume that the income statements for Paper Inc.
and Scissor are the following in fiscal year 2012. In addition, assume Paper
Inc. had dividends declared of $40,000 and Scissor Company declared $20,000.

Income Statement
			Paper Inc.	Scissor
Revenue			$900,000	$350,000
Dividend Income			15,000	–
	Total revenues		915,000	350,000
COGS			550,000	150,000
Operating Expenses			150,000	100,000
			700,000	250,000
	Net Income		215,000	100,000

Note:

–
Ignore tax impact

–
Net Asset change for the
year should be added to the cash
account