Draft entries to express correctly the above transaction on the books of the corporation, and prepare a statement of assets and liabilities of the company.
31. It is proposed to organize a corporation for the purpose of acquiring the stock and controlling three existing corporations, A, B, and C, two of which latter, A and B, have been in operation for five and three years, respectively, while C has been newly organized. The assets and liabilities of the several existing companies and the dividends paid are as follows:
| Assets | |||
| A | B | C | |
| Plant | $400,000.00 | $300,000.00 | |
| Material | 295,000.00 | 425,000.00 | |
| Cash | 40,000.00 | 15,000.00 | $500,000.00 |
| $735,000.00 | $740,000.00 | $500,000.00 | |
| Liabilities | |||
| A | B | C | |
| Capital | $100,000.00 | $300,000.00 | $500,000.00 |
| Surplus | 60,000.00 | 40,000.00 | |
| 6% Bond at 5 years | 500,000.00 | 300,000.00 | |
| Current Liabilities | 75,000.00 | 100,000.00 | |
| $735,000.00 | $740,000.00 | $500,000.00 | |
| Dividends Paid | |||
| $120,000.00 | $30,000.00 | ||
For the purpose of the issuance of stock in the new company to the holders of stock in the three existing companies, it is proposed to capitalize the latter upon the following basis:
Money assets at double their value; plant at 80% of book values; material at 70% of book values; annual net earnings at 8%; and the liabilities at par.
The new company will be organized with a capital stock of $2,200,000, all of which is to be used in acquiring the stock of the existing companies.
(a) What amount of stock in the new company are the owners of the stock in each of the existing companies entitled to receive?
(b) Give a short criticism attacking the above basis of stock allotment and submit a more equitable basis.
32. The Smith Brewing Co. with $1,000,000 capital stock, the Young Brewing Co. with $500,000 capital stock, and the Star Brewery with $400,000 capital stock, agree to consolidate as the Universal Brewing Corporation, the new company to buy all the properties of the old companies at a valuation to be fixed by appraisal, payment therefor to be made in full-paid stock of the new company, the old companies to pay off their own indebtedness.
The appraised values of the old companies are as follows: