Star Manufacturing Co.
Balance Sheet, June 30, 1918
| Machinery and Tools | $35,000.00 | Accounts Payable | $30,000.00 |
| Motor Trucks | 4,000.00 | Notes Payable | 19,000.00 |
| Patents | 6,000.00 | Capital Stock | 50,000.00 |
| Furniture and Fixtures | 500.00 | Surplus | 11,000.00 |
| Inventory, Materials, etc. | 8,000.00 | ||
| Finished Goods | 5,000.00 | ||
| Accounts Receivable | 50,000.00 | ||
| Cash | 1,500.00 | ||
| $110,000.00 | $110,000.00 | ||
After making the adjustments and allowing interest at 6% on the invested capital, the excess earnings were capitalized on a basis of 10% to obtain the amount of the good-will.
Average net profits for a period of three years: Elton Manufacturing Co. $17,000; Star Manufacturing Co. $10,800.
The Union Manufacturing Co. was capitalized at an amount equal to the net assets (after adjustments) and the good-will of the two merged companies.
(a) Find the capitalization of the Union Manufacturing Co. and the amount of preferred and common stock allotted to each of the merged companies.
(b) Write the journal entries to open the books of the Union Manufacturing Co.
(c) Prepare the balance sheet for the Union Manufacturing Co.
(d) Write the closing journal entries for the Star Manufacturing Co.
34. The following is abstracted from an agreement of merger and consolidation made December 31, 1917, between the Pennsylvania Tool Co., party of the first part, and the Keystone Tool Co., party of the second part. Said parties of both parts being corporations duly organized and existing under the laws of the State of Pennsylvania, by this agreement merge and consolidate into a single corporation.