Question

Assume zero tax rate. On March 31, 2019, Corn, Inc. completed the acquisition of 100% of Peas Corporation for $80 million paid in the form of a note due in 5 years with an interest rate of 6% per year. Assume 6% is a fair rate of interest. The following is historical and fair values of the assets and liabilities of Peas immediately prior to the acquisition:

	Book Value		Fair Value
Cash	$5,000,000		$5,000,000
Accounts Receivable	$4,000,000		$4,000,000
Inventory	$11,000,000		$11,000,000
Fixed Assets (5 year life)	$20,000,000		$20,000,000
Intangibles (10 year life)			$25,000,000
Goodwill
Total Assets	$40,000,000		$65,000,000
Accounts Payable and accruals	($6,000,000)		($6,000,000)
Equity	($34,000,000)
Total liabilities and net assets	($40,000,000)

Peas Corp prepared the following separate quarterly income statements for the year ended 12/31/19 (without any impact of purchase accounting adjustments for any periods.) There are no intercompany transactions.

	March 2019		June 2019		Sept 2019		Dec 2019
Revenues	$12,000,000		$10,000,000		$17,500,000		$21,000,000
Costs of Sales	($7,000,000)		($6,000,000)		($8,000,000)		($9,000,000)
Operating Expenses	($3,750,000)		($3,000,000)		($4,500,000)		($5,000,000)
Other Operating Exp	($2,250,000)		($1,500,000)		($3,500,000)		($3,750,000)
Net Income (Loss)	($1,000,000)		($500,000)		$1,500,000		$3,250,000

                                                Loss                            Loss                Income                            Income

Consolidated net income of Corn, Inc. for the year ended 12/31/19 was as follows:

Revenues	$650,000,000
Cost of Sales	($375,000,000)
Operating Expenses	($125,000,000)
Other Operating Expenses	($30,000,000)
Interest Expense	($10,000,000)
Net Income	$110,000,000
Assume 0% tax rate

10.   If the Peas Corp acquisition was completed as of 1/1/19, pro-forma consolidated revenue of Corn, Inc. would have been:

A.	$650,000,000
B.	$660,000,000
C.	$662,000,000
D.	$671,000,000
E.	$711,500,000
F.	None of the above

Answer 1