disposed of during 2017. The annual depreciation on existing assets is $40,000 per year. Equipment will be purchased on January 1, 2017, for $48,000 cash. The equipment will have an estimated life of 10 years, with no salvage value. Operating expenses, other than depreciation, will increase by 14% in 2017. All operating expenses, other than depreciation, will be paid in cash. Parent's income tax rate is 40%, and taxes are paid in cash in four equal payments. Payments will be made on the 15th of April, June, September, and December. For simplicity, assume taxable income equals financial reporting income before taxes. Parent will continue the $2.50 per share annual cash dividend on its common stock. If the tender offer is successful, Parent will finance the acquisition by issuing $170,000 of 6% nonconvertible bonds at par on January 1, 2017. The bonds would first pay interest on July 1, 2017 and would pay interest semiannually thereafter each January 1 and July 1 until maturity on January 1, 2027. The acquisition will be accounted for as a purchase, and Parent will account for the investment using the equity method. Although most of the legal work related to the acquisition will be handled by Parent's staff attorney, direct costs to prepare and process the tender offer will total $2,000 and will be paid in cash by Parent in 2017. As of January 1, 2017, all of Subsidiary's assets and liabilities are fairly valued except for machinery
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- Spring '17
- Ellen Zitani
- Balance Sheet, Parent, Generally Accepted Accounting Principles