The name of the corporation hereby formed by said consolidation shall be the Pennsylvania Tool Co.
The amount of capital stock of the new corporation is $100,000, all of which shall be common stock divided into 1,000 shares of a par value of $100. The manner of distributing capital stock shall be as follows:
The capital stock of the Pennsylvania Tool Co., party of the first part, shall be exchangeable for capital stock of the new corporation, share for share, and the balance of the capital stock of the new corporation hereby formed shall be distributed to the stockholders of the Keystone Tool Co., in proportion to their present holdings.
The Pennsylvania Tool Co., party of the first part, was incorporated shortly before the date of the merger, and had transacted no business other than the issuance of ten shares of capital stock, $100 each, for which payment of $1,000 had been received, and which was on hand in the treasury of the company on the date of the merger, and directly after the merger transferred to the bank deposit account of the consolidated company and credited to an account called “Suspense.”
The Keystone Tool Co. had for a number of years been actively engaged in business. Its fiscal year ended September 30, 1917, at which time an inventory was taken and its accounts had been properly closed. At the date of the merger the following trial balance was drawn from the books:
| Cash | $ 20,000.00 | |
| Accounts Receivable | 15,000.00 | |
| Merchandise Inventory, September 30, 1917 | 130,000.00 | |
| Merchandise Purchased | 250,000.00 | |
| Expenses | 25,000.00 | |
| Accounts Payable | $ 10,000.00 | |
| Sales | 300,000.00 | |
| Capital Stock | 30,000.00 | |
| Undivided Profits Balance, September 30, 1917 | 100,000.00 | |
| $440,000.00 | $440,000.00 |
The account books of this concern were not closed at the date of the merger and no inventory was taken, although the exchange of capital stock was effected and also all business after December 31, 1917, was transacted under the name of the Pennsylvania Tool Co., and it was not until March 31, 1918, that an accountant was asked to state the accounts of the new company from the date of the consolidation.
At March 31, 1918, before the accountant had commenced his work, an inventory was taken which showed the value of merchandise on hand as at that date, to be $216,250, and the following trial balance was abstracted from the books:
Trial Balance, March 31, 1918
| Cash | $ 26,000.00 | |
| Accounts Receivable | 10,000.00 | |
| Merchandise Inventory, September 30, 1917 | 130,000.00 | |
| Merchandise Purchased | 600,000.00 | |
| Expenses | 60,000.00 | |
| Accounts Payable | $ 10,000.00 | |
| Sales | 685,000.00 | |
| Suspense | 1,000.00 | |
| Capital Stock | 30,000.00 | |
| Undivided Profits | 100,000.00 | |
| $826,000.00 | $826,000.00 |