Your supervisor asks you to analyze the potential purchase of Drew Company by your firm, Pierson, Inc. You are provided the following information (in million):

                                                                                                Pierson,Inc.                        Drew COMPANY

                                                                                                Historical                              Historical                              Fair

                                                                                                Cost Based                          Cost Based                          Value

Current Assets                                                                       $70                                         $60                                    $65

Land                                                                                            60                                           10                                      10

Buildings, net                                                                           80                                            40                                      50

Equipment, net                                                                                     90                                             20                                       40

Total Assets                                                                        $300                                          $130                                    $165

Current Liabilities                                                             $120                                          $20                                        $20

Shareholders' equity                                                        180                                          110                                      -----

Total liabilities and equity                                             $300                                         $130

Required:

a. Prepare a pro forma combined balance sheet using purchase accounting. Note that Pierson pays $180 million in cash for Drew where the cash is obtained by using long term debt.

b. Discuss how differences between pooling and purchase accounting for acquisitions affect future reported earnings if the Pierson/Drew business combination.