Expert answer:Business Expansion Strategies

Solved by verified expert:JIM is acquiring all of the assets of Mason Machining, Inc. in a
merger transaction. Mason transfers assets having a FMV of $1,775,000
and an adjusted basis of $995,000 and $200,000 in liabilities to JIM in
exchange for $750,000 in cash and $800,000 of JIM’s common stock.Click here to view Mason’s Acquisition Data.Explain what type of merger this is. JIM distributes its stock and cash to Mason in exchange for all of its assets.
Calculate Mason’s gain on this transaction.
How much of this gain will Mason recognize?
How must tax liability will Mason incur from this transfer? Evaluate the impact of managerial decisions on the tax liability of the firm. Explain the tax consequences of various strategies for mergers, acquisitions, and
divestitures. Mason distributes the JIM stock and cash to its shareholders for all
of their shares of Mason’s stock. Shareholders’ basis in this stock is
$600,000. Calculate how much gain the Mason’s shareholders will realize and recognize on this transfer.
How must tax liability will Mason’s shareholders incur from this transfer?
Explain the tax implications for JIM. 1500-2000 words, not including title and references, APA FormatEvaluate the impact of managerial decisions on the tax liability of the firm. Explain the tax consequences of various strategies for mergers, acquisitions, and
divestitures.
acct618newmasonacquisiton.xls

acct618newjeffersonfinancialstatements.xls

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Mason Machining, Inc.
Acquisition Data
2010
2011
Difference
Balance Sheet
Cash
$165,000
$200,000
Other Assets
1,500,000
1,575,000
75,000
Total Assets
$1,665,000
$1,775,000
$110,000
$165,000
$225,000
$60,000
Liabilities
Common Stock, $1 par
Retained Earnings
Total Liabilities & Equity
$35,000
1,000,000
500,000
$1,665,000
1,000,000
550,000
$1,775,000
0
50,000
$50,000
$5,250,000
2,500,000
$2,750,000
$6,000,000
2,800,000
$3,200,000
$750,000
$300,000
$450,000
900,000
500,000
$1,350,000
950,000
500,000
$1,750,000
$50,000
$0
$400,000
Income
Sales
Variable Expenses
Contribution Margin
Less Fixed Expenses:
Costs
Depreciation
Net Operating Income
Jefferson Industrial Machine
Cost of Goods Manufactured – Consolidated
2011
“000” Omitted
Activity
Beginning balance of Work in Process 1/1/11
Manufacturing cost for the period:
Raw material
Beginning balance of raw material, 1/1/11
Purchases of Raw Materials
Raw materials available
Ending balance
Total raw materials used
Direct Labor Factory
Variable overhead
Indirect labor
Supplies
Fixed overhead
Supervisor’s salary
Utilities
Factory property taxes
Factory assets depreciation
Factory insurance
Total current period manufacturing costs
Total cost to account for
Ending work in process, 12/31/11
Cost of goods manufactured
$4,940
$2,470
20,583
$23,053
-1,647
$21,406
4,117
8,233
4,117
12,350
417
999
216
4,450
2,165
8,247
46,120
$51,060
-2,744
$48,315
Jefferson Industrial Machine
Cost of Goods Sold – Consolidated
Beginning finished goods, 1/1/11
Cost of goods manufactured
Cost of goods available for sale
Ending finished goods, 12/31/11
Cost of goods sold
$7,135
48,315
$55,451
-6,061
$49,390
Jefferson Industrial Machine
Balance Sheet – Consolidated
31-Dec-11
(dollars in thousands)
ASSETS
Current assets:
Cash
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Property and equipment:
Land
Plant and equipment
Total property and equipment
TOTAL ASSETS
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Notes payable, short term
Total current liabilities
Long-term liabilities:
Bonds payable, 8%
Total liabilities
Stock holder’ equity:
Common stock
Retained earnings
Total stockholders’ equity
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
$7,948
10,992
10,452
1,009
$30,401
3,703
45,581
49,283
$79,684
$17,183
2,470
$19,653
7,400
$27,053
42,288
10,343
$52,631
$79,684
Jefferson Industrial Machine
Income Statement – Consolidated
For Year Ending December 31, 2011
(dollars in thousands)
INCOME
Sales
Cost of goods sold
Gross margin
Interest on checking account
TOTAL INCOME
OPERATING EXPENSES
Compensation of Officers
Salaries
FICA
FUTA and SUTA
Advertising expenses
State income taxes
Administrative expenses
Bad debt expense
Headquarters’ property tax
Charitable contributions
TOTAL OPERATING EXPENSES
Net operating income
Interest Expense
NET INCOME BEFORE TAXES
Federal tax expense
NET INCOME
Administrative expenses include:
Repairs and maintenance
Rents
Depreciation
Pension, profit-sharing
Employee Benefit Programs
$68,610
-49,390
$19,220
7
$19,227
$624
1,520
180
170
3,826
400
2,844
333
15
13
$9,925
$9,302
34
$9,268
3,151
$6,117
$1,554,000
$120,000
$520,000
$350,000
$300,000
Jefferson Industrial Machine
Statement of Cash Flows – Consolidated
For Year Ending December 31, 2011
(dollars in thousands)
Cash sales
Cash payments:
For inventory:
Raw materials
Direct labor
Total operating expense
Total cash payments
Net cash inflow form operating activities
Beginning balance of cash 1/1/11
Ending balance of cash 12/31/11
$35,836
$20,583
4,117
9,182
$33,882
$1,954
5,994
$7,948
…
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