Leveraged ESOP Question
In a leveraged ESOP, which Case is correct? Or, are both correct?
Case A: 1) Company borrows $ from Bank, creates note payable to Bank 2) Company lends $ to newly formed ESOP, receives note payable in same amount 3) ESOP pays owner $ and receives X% of stock in return 4) Company makes annual payments to ESOP, which repays loan to company 5) Company makes annual payments to Bank
Case B: 1) Bank lends $ to ESOP, company is the guarantor 2) ESOP buys shares in the company from proceeds 3) Company makes annual payments to the ESOP which then pays Bank
Just wondering b/c I was sent a B/S with a large negative number next to an "Unearned ESOP Shares" line item under Shareholder's Equity. They were using Case A to model the pro forma B/S.
