Spalding Company has offered to sell to Ping Company its assets at their book values plus $1,800,000

Spalding Company has offered to sell to Ping Company its assets at their book values plus $1,800,000 representing payment for goodwill. Operating data for 2010 for the two companies are as follows:.:.Ping Company’s management estimates the following operating changes if SpaldingCompany is merged with Ping Company through a purchase:A. After the merger, the sales volume of Ping Company will be 20% in excess of the present combined sales volume, and the sale price per unit will be decreased by 10%.B. Fixed manufacturing expenses have been 35% of cost of goods sold for each company. After the merger the fixed manufacturing expenses of Ping Company will be increased by70% of the current fixed manufacturing expenses of Spalding Company. The current variable manufacturing expenses of Ping Company, which is 70% of cost of goods sold, is expected to increase in proportion to the increase in sales volume.C. Selling expenses of Ping Company are expected to be 85% of the present combined selling expenses of the two companies.D. Other expenses of Ping Company are expected to increase by 85% as a result of the merger.Any excess of the estimated net income of the merged company over the combined present net income of the two companies is to be capitalized at 20%. If this amount exceeds the price set by Spalding Company for goodwill, Ping Company will accept the offer.Required:Prepare a pro forma (or projected) income statement for Ping Company for 2011 assuming the merger takes place, and indicate whether Ping Company should accept the offer.View Solution:
Spalding Company has offered to sell to Ping Company its