(b) Prepare a corrected statement of the Atlantic Co.
Sinking Fund
28. A corporation issues 10-year bonds to the amount of $50,000, securing same by a mortgage on its property, which is placed in the hands of a trust company.
The trust deed provides for the establishment of a sinking fund to retire the bonds at maturity and that equal annual payments be made on the first of January in each year. Give the amount of this annual payment, interest compounded at 6%.
29. The United Manufacturing Co., on January 1, 1918, placed in service a piece of machinery which would depreciate, according to its chief engineer, at the rate of 15% per annum. The original cost of this machinery was $84,000 and the board of directors agreed to set aside annually a sinking fund which, together with interest thereon, will amount to the original cost at the end of the prospective life of the machinery.
This sinking fund is to be deposited with a trust company on December 31 of each year, and a proportionate amount at the end of the last partial year of the life of the machine. Interest is to be credited by the trust company at each of these dates at the rate of 4% per annum.
Show how the amount of the annual sinking fund payments may be arrived at, and prepare a detailed statement for the board of directors proving that the amount so obtained is correct.
Consolidations, Mergers,
and Reorganizations
30. Three manufacturers, each having an independent business and wishing to effect a consolidation of their respective interests, organize the United States Manufacturing Corporation, with an authorized capital stock of $1,500,000, consisting of 7,500 shares of preferred stock and 7,500 shares of common stock, of $100 each. They sell to the new company all of their real estate, buildings, machinery, tools, fixtures, merchandise, and supplies, in consideration of $1,500,000, and agree to accept in payment $750,000 of preferred and $750,000 of common stock of the United States Manufacturing Corporation at par. The vendors donate to the treasury of the company $150,000 of preferred stock and $150,000 of common stock to provide for working capital. The company sells $100,000 of its preferred stock in the treasury for 80% cash, giving a bonus to the purchaser of 20% in common stock.
For the purpose of raising additional funds for improvements and additions to plants, the company mortgages its real estate and buildings, as security for an issue of bonds amounting to $250,000. These bonds the company sells to bankers at 90%, giving as a bonus 10% of preferred stock and 20% of common stock.