Graded Corporation Problems BY Samuel F. Racine Certified Public Accountant Graded Corporation Problems BY Samuel F. Racine Certified Public Accountant COPYRIGHT 1914 BY SAMUEL F. RACINE PUBLISHED BY THE WESTERN INSTITUTE OF ACCOUNTANCY, COMMERCE AND FINANCE 'idJARYBLp^, \j SEATTLE, WASH. • * '■ •! ''a •'■♦ "i I • . Accounting Students' Series ACCOUNTING PRINCIPLES. By Samuel F. Racine, C. P. A. $3.00. A text written expressly for the advanced students of one of the leading schools of the West. It is the one book on account- ing principles to which the student can refer and find an answer to any of the baffling questions on the theory of accounts. Every published examination paper of recent years was carefully studied in an effort to bring all of their salient features into this unusual book. Depreciation, Goodwill, Reserves and Sinking Funds re- ceive the careful attention they so justly deserve. STUDENTS' GUIDE TO THE STUDY OF AUDITING. By Samuel F. Racine, C. P. A. $1.00. A careful analysis of the lead- ing text book on auditing arranged in question form for the pur- pose of facilitating study. Every page of the text book was carefully analyzed and special questions were prepared to bring out each important point mentioned so that the student is guided directly to the particular information he should secure from each chapter and, by endeavoring to answer the questions after com- pleting a chapter, can readily determine the result of his effort. Instructors and students who are using this book find it invaluable, STUDENTS' GUIDE TO THE STUDY OF ACCOUNTING. By Samuel F. Racine, C. P. A. $1.00. A book similar to the Guide to the Study of Auditing but containing carefully chosen ques- tions on a number of the leading text books on general accounting and cost accounting. It also contains a number of problems and solutions illustrating the subject matter of the text books used. GRADED CORPORATION PROBLEMS: By Samuel F. Racine, C. P. A. $1.25. A series of problems chosen from the C. P. A. examination questions, classified according to subject and care- fully graded. 288834 GRADED CORPORATION PROBLEMS CODE: NABOB. On paper ruled as for a stock ledger make entry of the following stock trans- actions of William Henderson, closing the account as of October 31, 1904, and carrying down the balance : (a) 100 shares (par value $100.00) originally issued, full paid at par, to Wil- liam Henderson by certificate No. 5, August 16, 1904. (b) William Henderson sells 50 shares of the original 100 to Charles Gibbons at $130.00, September 14, 1904, receiving certificate No. 37 for shares retained. (c) October 28, 1904, William Hen- derson purchases from John Hogan 25 shares at $115.00 and receives certificate No. 78. GRADED CORPORATION PROBLEMS CODE: NAIL. Of $300,000 authorized capital (com- instalment has been called and collected, mon stock) $260,000 has been subscribed. The second instalment has been called, $80,000 was paid in cash and $100,000 in but has not yet been collected. Make property. The remainder is to paid in original entries covering above trans- cash in five equal instalments. The first actions and prepare ledger accounts. GRADED CORPORATION PROBLEMS CODE: NATAL. A corporation organizes under the laws of Michigan to conduct a manufacturing business. Authorized capital, $400,- 000.00, half each common and preferred stock ; shares $100.00. Five incorporators each subscribe for ten shares of common stock at face value. John Smith purchases from three manufacturing companies their complete plants for $395,000.00 and transfers said plants to the incorporated company for the remaining $395,000.00 of common and preferred stock and $150,000.00 of first mortgage 5% bonds out of a total issue of bonds of $200,- 000.00, leaving $50,000.00 of bonds in the treasury. Make opening journal entries and trial balance showing the company's condition after the transaction. GRADED CORPORATION PROBLEMS CODE: NATURAL. "A," "B" and "C" organize Company "D." Capital stock, $100,000.00. "A" subscribes for 740 shares; "B," 250 shares ; "C," 10 shares. "A" is credited with $25,000.00 for services in organizing the company, and is to secure an additional credit of $3,000.00 per month as salary. "B" is to secure a credit of $1,000.00 per month as salary. "C" receives $1,000.00 for services in organizing the company. "A" then has certificates issued to "X" for 20 shares, "Y," 15 shares, and "Z," 15 shares, and also donates 30 shares to the company for working capital. "M" buys the treasury stock at par, paying cash. Certificates are issued "C" in full. "B" gets a certificate for 1 month's services, and "M" receives his certificate. Required journal entries and skeleton ledger to cover the above transactions showing in addition to the usual accounts, accounts with certificates issued and un- issued, at par value, in the general ledger. GRADED CO RPORATION PROBLEMS CODE: NAVE. On May 31, 1905, corporation "A" The selling price to corporation "B" is sells its assets (except cash) to corpora- $100,000.00; $50,000.00 being payable in tion "B." The balance sheet of corpora- cash and $50,000.00 in the capital stock tion "A" is as follows : of corporation "B." assets: On completion of the sale to corpora- Real Estate, Buildings. Machinery tion "B," corporation "A" pays its bills and Furniture $ 40,000.00 , ^ ^ , , j- j. -u ^ ^i. Merchandise Inventory 15,000.00 ^nd accounts payable, distributes the Bills and Accounts Rec 20,000.00 assets then remaining to its stockholders, Cash 5,000.00 pro rata and dissolves. » u i. r Undivided Profits 5,000.00 stock of corporation B each share of corporation "A" is entitled to in the final $ 80,000.00 distribution. GRADED CORPORATION PROBLEMS CODE: NEAT. The following figures are taken from the books of a firm as at December 31, 1912: Accounts Receivable $27,850.00 Merchandise Inventory 9,750.00 Furniture and Fixtures 2,250.00 Plant and Machinery 20,000.00 Investments — Schedule I 24,000.00 Investments — Schedule II 17,500.00 Accounts Payable 48,000.00 Bills Payable 45,000.00 On January 1, 1913, a corporation was formed to take over the business but the Investments list in Schedule II were retained by the partners. 10,000 out of 25,000 shares of Common Stock of the par value of $5.00 each were issued to the vendors as fully paid and 5,000 shares were issued for cash. 9,000 out of 25,000 shares of 6% Preferred Stock of the par value of $5.00 each were given in payment of the Bills Payable of $45,000. Prepare statement showing the position of the firm's accounts upon the formation of the corporation, the opening journal entries on the books of the new company, and a Balance Sheet for the company after formation, dealing with any difference" according to your judgment. -^™- GRADED CORPORATION PROBLEMS CODE: NECTAR. A corporation took over the business of an individual whose books showed him to be worth $125,000, for the sum of $200,000, payable $50,000 in bonds, $50,- 000 in preferred stock, $50,000 in com- mon stock and the remainder in cash. The capital of the company was $100,000 preferred stock and $100,000 common stock. The balance of the stock was sub- scribed for and bonds were issued for $100,000. According to the subscriptions the stock was to be paid in as follows: 10% on application, 40% in 30 days after allotment and 50% in three months thereafter. On the bonds 10% was to be paid on application and the balance in 30 days after allotment. Make the necessary journal entries on the books of the company to cover these transactions in accordance with the state- ment following: Property and plant $ 75,000 Raw material 25,000 Unfinished orders 15,000 Accounts receivable 25,000 Cash 10,000 Accounts payable $ 25,000 Make journal entries closing the books of the individual vendor. i ' GRADED CORPORATION PROBLEMS CODE: NEOLITHIC. The Patent Specialty Company was organized July I. 1907, with a capital of $100,000, to manufacture novelties. The following transactions occurred : July 1, 1907, one-half of the capital .stock was subscribed and issued, 10% being called and paid on that date in cash. Legal and other incorporation ex- penses, amounting to $500, were paid. August 20, 1907, patent, covering novelty, was purchased for $50,000, pay- able one-half in stock and one-half in cash ; the stock was issued and delivered, $2,000 paid in cash and note given for balance, due in one month, 6% interest. The patent was subject to royalty rights granted to the novelty company, which terminated at date of purchase. All ac- rued royalties were to pass with patent and no royalty rights were granted by the Patent Specialty Company. August 27, 1907, the village Board of Trade donated a lot, valued at $5,000, in consideration of agreement to erect and equip a plant at a cost of not less than $25,000. September 13, 1907, a further call of 70% was paid. The note was paid at maturity. December 31, 1907, the following facts existed : Payments on account of salaries, in- terest, insurance, etc., amounted to $2,250, with $250 accrued; contracts for construction and equipment amounting to $35,000 had been given which were 75% completed and 40% paid ; royalties amounting to $2,725 had been received and $190.00 was accrued. Prepare journal entries to cover fore-, going, and statement to display financial condition at December 31, 1907. GRADED CORPORATION PROBLEMS CODE: NESTLE. The Domestic Manufacturing Company, organized with a capital stock of $5,000,- 000, one-half preferred stock and one-half common stock, sells five shares of the common stock at par for cash. It issues to John Jones $1,500,000 preferred stock and $1,000,000 common stock in consid- eration of the assignment by him of cer- tain patents, rights and contracts. Later, Jones agrees to surrender for valuable consideration to the treasurer of the Domestic Manufacturing Company $1,- 000,000 common stock and $500,000 pre- ferred stock. Still later, Jones agrees with the Domestic Manufacturing Com- pany to surrender $1,000,000 preferred stock and to take in lieu thereof $1,000,- 000 common stock. Jones makes a fur- ther agreement with the Domestic Manu- facturing Company to deliver to it all the stock in the Blank Manufacturing Com- pany, appraised at $350,000, and to pay the Domestic Manufacturing Company $150,000, for which he is to receive $500,- 000 of preferred stock of the Domestic Manufacturing Company. Illustrate by journal entries the neces- sary accounts to be opened on the books of the Domestic Manufacturing Company to show each step taken in the foregoing agreement. GRADED CORPORATION PROBLEMS CODE: NEXT. On January 1, The Fairview Real Es- tate Association was incorporated, the capital subscribed and paid in being $30,- 000, divided into 30 shares. The associa- tion purchased improved property for speculative purposes, paying cash $30,- 000 and giving a first mortgage for $60,000 at 6%. The association organized anjd incor- porated on the same day the Fairview Club, with 30 proprietary members (being the stockholders of the real estate association), and 30 associate members, who have no proprietary interest, but en- joy all privileges without incurring any of the liabilities. The annual dues are $100 a year, paid by all in advance. The association leased to the club the property aforesaid. The consideration in lieu of rent being the payment by the club of all sums for taxes, betterments, interest, fixtures, furniture, etc. The proprietary members are assessed $300 each, and by a subsequent resolution of the association are to receive credit therefor, with interest at 6%. Five mem- bers fail to pay the assessment. The association having executed a con- tract for the sale of the property for $110,000, the club disbands at the end of the year. The club expenditures for the year were as follows : Taxes, $1,800 ; interest on mortgage, $3,600; repairs, $1,000; improvements, $3,000 ; furniture and fixtures, $2,000; general expenses, $500; help (sundry employees), $1,600. There were house charges against the members of $500, which were subse- quently collected ; and there were payable book debts of $4,000. A second assess- ment of $100 called for to pay oflF the club debts, was paid by the proprietary members of the association. Frame journal entries, raise and close accounts on the association and club books, and prepare balance sheet and revenue account for each. GRADED CORPORATION PROBLEMS CODE: NIHIL. A company is formed, under the laws of Mexico, to take over and work certain mining properties. At the end of one year the company is found to possess : Mining lands $ 484,675.48 Buildings and improvements 20,499.76 Machinery 25,612.88 Cash on hand and in bank 24,612.50 Silver bullion 85,209.50 Ore in dump 13,680.00 Merchandise 5,420.80 Fuel, oil, etc 679.20 The company owes : On open account $ 3,890.12 On account of pay rolls 400.00 Note due in six months, with in- terest at 6% 25,000.00 The capital, fully paid, is 500,000.00 Set up balance sheet. GRADED CORPORATION PROBLEMS CODE: NIHILISM. As the greater part of the capital in- vested in the undertaking set forth in the preceeding question is furnished by citi- zens of the State of New York, a cor- poration is organized under the laws of that state to acquire a majority of the capital stock of the Mexican company and thus control its affairs. The capital is fixed at $200,000, all of which is sub- scribed for and paid in at 120. An issue of $200,000 in 20-year 6% gold bonds is authorized and sold at 110. The new company purchases 4,000 shares of the capital stock of the Mexican company, par value $100 per share, Mexican silver at 150. At the end of one year a divi- dend of 15% is received on these shares. The taxes and expenses of the company are $8,640. Set up a profit and loss statement and balance sheet, assuming the value of the Mexican dollar to be 50 cents, gold. GRADED CORPORATION PROBLEMS CODE: NOBLY. "A," "B" and "C" constitute a firm engaged in a manufacturing business, which they have decided to change into a stock company with a capital of $100,- 000, equally divided into common and preferred stock, par value of each share $100. Each partner is to take stock to the amount of his net investment in the business on the basis of 75% preferred and 25% common stock, and the remain- ing shares authorized are to be offered for sale. On the taking over of the busi- ness the books of the company show as- sets as follows : real estate, $25,000 ; machinery and tools, $10,000 ; merchan- dise, $15,000 ; material and supplies, $8,000; cash, $5,000; notes receivable, $3,000 ; accounts receivable, $9,000. The liabilities are : notes payable, $10,000 ; accounts payable, $5,000; "A," $25,000; "B," $20,000, and "C," $15,000. Formulate the necessary entries to close the books of the firm and to open the corporation ledger. GRADED CO RPORATION PROBLEMS CODE : NONCE. 3. "X" Company pay "A." "B." & Co. "A." and "B." were partners trading $30,000.00 for the goodwill of the busi- under the name of the "A." "B." & Co. ness. June 30, 1908, the following balances 4. Payment to "A." "B." & Co., is appear on their ledger: made as follows: $50,000.00 in first "A", Capital account $ 70,000.00 mortgage bonds, and the balance in capi- "B" Capital account 50,000.00 ^^j ^^^^]^ ^f ^he "X" Co. Real Estate 22,000.00 ^ , ,^ . n- i^ ^ „ ar, „ o r^ Buildings 20,000.00 »• ^^ter paymg off A. B. & Co. Machinery & Tools 44,000.00 the remainder of the capital stock is sold Furniture & Fixtures 2,000.00 for cash to sundry persons. Accounts Rec ^S'SSS The real estate which was retained by Cash 7,000.00 « a " "d »» p <- • i , . r « a » Material & Mdse 53,000.00 ^- ^- & <-0- ^s bought from A. Accounts Payable 35,000.00 "B." & Co. by "A." for $7,000.00 and is Bills Payable 48,000.00 to be charged to "A.'s" capital account. ^'•J^ ^f qa-"iqaq":u""k •"""■ ^'^-^ After the completion of the above de- J""f 3<^; 1?H? the business IS m- ^^^^^ed transactions "A." and ''B." dis- corporated as the X Co., on the follow- solve partnership. '"l^Ca"pital Stock, $150,000.00. •„ J°V- ' T^'lu'^L ^V '°. ?'f ^f'fp'lPl" o «v'' n * 1 4.U 4.- i"g entries for the books of A. B. & 2. X Company takes over the entire r-^ /u\ „ o* 4. ,. ^^- <■ ^i assets and liablities of "A." "B." & Co. Si" r.iW ' ^^^^ement setting forth at the book fieiires as above exceot Ca) partners accounts down to their real estate of the book value oi $5,000 00, ^"^^ '^°^^"?; beginning with the balances which is retained by "A." "B." & Co. f^" ^^ '^^ ,^°°^%T ^1!"^ ??' ^^^^' (b) the accounts receivable, which are ^'^ °P^"^"^ ^"*"^^ °^ '^^ ^ ^o. taken over at $48,000.00, and (c) the capital accounts of the partners. GRADED CORPORATION PROBLEMS CODE: NORTHING. Brown and Jones have dry goods stores near each other. They decide that by amalgamating their businesses and forming a joint stock company they can do a larger and more profitable business at less expense. Both have kept their books by single entry. You are called in to give the necessary statements to en- able them to ascertain how they stand and to open the books of the Brown-Jones Company, Limited. You find the follow- ing accounts in the ledgers, viz. : BROWN'S LEDGER BALANCES AS AT AUGUST 1, 1909. Cash on hand $ 250.00 $ Bank Balance 5,400.00 Cash Sales 10,000.00 Book debts 25,000.00 Bills receivable 3,000.00 Store and land 30,000.00 Fixtures 2,000.00 Wages and expenses 4,000.00 Accounts payable 6,000.00 Bills payable 2,550.00 Brown's drawings 10,000.00 Freight, duty and cart- age 8,000.00 Inventory of goods 8,700.00 Unexpired insurance .. 200.00 JONES' LEDGER BALANCES AS AT AUGUST 1, 1909. Cash on hand $ 100.00 $ Bank balance 3,500.00 Cash sales 12,000.00 Stores and land 25,000.00 Fixtures 1,500.00 Wages 2,000.00 Jones' personal account 6,000.00 Expenses 1,500.00 Book debts 15,000.00 Bills receivable 1,000.00 Freight, duty and cart- age 5,000.00 Accounts payable 5,000.00 Bills payable 3,000.00 Inventory of goods 5,800.00 Unexpired insurance 100.00 The capital of the company is to be $150,000.00, in shares of $100.00 each, of which Brown is to take $70,000.00 and Jones $50,000.00. If the capital invested in the business of either exceeds these sums, they are to receive the surplus in cash, but if it is less, they are to pay in the difference in cash. The bal- ance of the stock is subscribed and paid for in cash. Make necessary changes in Brown's and Jones' ledger balances to show stand- ing of firms and capital invested, and give trial balance from company's ledger after opening entries have been made. GRADED COR PORATION PROBLEMS CODE: NOTE. "A" and "B" arrange with "C," "D" "A" and "B" are partners and share and "E" to form a corporation with a profits in proportion to their capital in- capital stock of $15,000.00. The cor- vested. "C," "D" and "E" are partners, poration to assume all assets and liabil- having equal interest in the business. A ities of both partnerships. Each partner- balance sheet from the books of "A" and ship agrees that a reserve of 10% against "B" is as follows : Accounts Receivable shall be created and . ,/ssETs: charged against their individual partner- Cas'hTBank ^ fS '^^P ^^^^^^^^ P"^'' ^° ^^^ consolidation. Merchandise as' "per'Tnventory.T.""!' 2!500"00 The entire capital stock is to be allotted to ''A," "B," "C," "D" and "E," in pro- $ 6,000.00 portion to their partnership holdings. liabilities: "^^^ organization expense paid by the Accounts Payable $ 1,200.00 new company was $200.00. "A's" Investment 1,500.00 Make a balance sheet for the new com- BHh ParaSr"* ^S Pany, and give each of the aforesaid part- Undivided Profits 800'00 "^^s ^is allotment of shares. $ 6,000.00 "C," "D" and "E" kept no books, but have the following assets and liabilities : ASSETS : Cash in Bank $ 800.00 Accounts Receivable 3,000.00 Merchandise as per inventory 3,000.00 Real Estate— Warehouse 1,200.00 $ 8,000.00 LIABILITIES : Mortgage on Real Estate $ 500.00 Accounts Payable 300.00 $ 800.00 GRADED CORPORATION PROBLEMS CODE: NOTICE. Charles and Robert Wilson are co- partners in a manufacturing business, trading under the firm name of Wilson Bros. Following is a statement of the firm's financial condition Dec. 31, 1900: ASSETS : Real Estate and Buildings _ $ 165,000.00 Machinery and Fix 39,000.00 Horses, Trucks and Harness 4,500.00 Patents 1,500.00 Stocks and Materials 20,000.00 Notes and Loans Rec 5,000.00 Accounts Receivable 15,000.00 $ 250,000.00 LIABILITIES : Notes Payable $ 4,000.00 2,000.00 $ 6,000.00 Accounts Payable $ 10,000.00 10,000.00 10,000.00 4,000.00 34,000.00 Chas. Wilson, Capital.... Robt. Wilson, Capital.... 150,000.00 60,000.00 $ 250,000.00 A joint stock company under the cor- porate title of Wilson & Wilson, Incor- porated, is organized with a capital of $300,000, of which $60,000 is 8% cumu- lative preferred stock and $240,000 is common stock (both $100 par value), to acquire and conduct the business of Wil- son Bros. Charles and Robert Wilson and Henry Miller each subscribe for $10,000 of common stock. The company votes to acquire the interest of Charles and Robert Wilson in the business, real estate, plant, outstanding accounts, etc., of Wilson Bros., and to assume the firm's indebtedness of $40,000, in consideration of the sum of $210,000, and to pay there- for 2,100 shares of common stock of the corporation, 1,500 shares to be issued in the name of Charles Wilson and 600 shares in the name of Robert Wilson. The company votes to place a mortgage on its real estate and plant for $50,000 to secure an issue of $50,000 first mort- gage 5% gold bonds of the denomina- tion of $1,000 each. The creditors sub- scribe for preferred stock to the amount of 50% of the amounts due them and take bonds at par for the remainder. Make all entries for the foregoing transactions in the order of their occur- rence, giving details to be found in ledg- ers and all subsidiary books of account and record. GRADED CORPORATION PROBLEMS CODE: NOVICE. Messrs. Sharp and Flat, partners, en- gage in manufacturing, decide to form a business corporation under the laws of New York, under the name of The Sharp & Flat Manufacturing Company, having an authorized capital of $100,000. The corporation, in consideration of the en- tire issue of capital stock, purchased all of the assets and assumed all of the Ha- bilities of the partnership as shown by the following balance sheet dated May 31, 1900. Sharp & Flat take all the stock except five shares, par value, $100 each, issued to incorporators for cash subscriptions. BALANCE SHEET— MAY 31, 1900. ASSETS : Plant and machinery $ 35,000.00 Stock on hand per inventory 20,525.00 Accounts receivable 22,750.00 Bills receivable 1,500.00 Cash ; 5,225.00 $ 85,000.00 LIABILITIES : Sharp's capital $ 42,500.00 Flat's capital 36,300.00 Accounts payable 5,250.00 Bills payable 700.00 Wages due and unpaid 250.00 $ 85,000.00 During the first year of the corpora- tion's existence, the books were kept in the same manner as during the partner- ship. Soon after the end of the first fis- cal year, however, a certified public ac- countant was presented with the follow- ing trial balance showing the condition of the books, May 31, 1901, and was re- quested to open a new set of books for the corporation, covering the operations of the business during the past year, and to prepare therefrom an income and prof- it and loss account and a balance sheet : TRIAL BALANCE— MAY 31, 1901. Sharp's capital $ $ 42,500.00 Flat's capital 36,300.00 Plant and machinery.. 37,500.00 Stock on hand, per ventory, May 31, 1900 20,525.00 Sales 131,405.00 Purchases : Material and supplies 48,000.00 Labor 34,500.00 Office Salaries 7,000.00 Traveling expenses 2,400.00 Interest 600.00 Stationery and print- ing 175.00 Rent and taxes 4,200.00 Discounts and allow- ances 2,250.00 Fuel 4,600.00 Insurance 175.00 Freight, inward 1,750.00 Commission 6,375.00 Advertising 500.00 Bills receivable 6,115.00 Bills payable 1,100.00 Accounts receivable.... 36,115.00 Accounts payable 7,850.00 Cash 6,375.00 $ 219,155.00 $ 219,155.00 Draft the opening journal entries nec- essary to give effect to the above, pre- pare an income and profit and loss ac- count and a balance sheet as at May 31, 1901. Write oflF (a) depreciation 5% on plant and machinery, (b) unexpired in- surance $75.00, (c) bad debts $325.00. Inventory, stock on hand May 31, 1901, $19,605.00. GRADED CORPORATION PROBLEMS CODE: NUMB. "^ Senior partner "A" desires to retire from active business life. He has con- fidence in the abiHty and integrity of his partner "B" and both have a Hke regard for their sales manager "C" and their works manager *'D" who have accumu- lated considerable means. In this situa- tion "B" proposes to organize and to continue the business as a corporation, under his executive management, and to bring in sufficient capital from "C" and "D" in equal parts to pay off the prin- cipal of a real estate mortgage falling due at the end of the year, and sufficient capital from "E", who is not connected with the business, to pay oflf the prin- cipal of the firm's notes payable. It is contemplated that "E" shall be made the treasurer of the corporation and that the five parties shall be the incorporators and constitute the first board of direc- tors. In the discussion between "A" and "B" it is agreed that the net worth of the business, exclusive of the goodwill which has never been represented on the books, shall be converted into preferred stock of the corporation and that the goodwill shall be valued at one-half the net worth and be converted into common stock ; also that the cash capital contributed by "C", "D" and "E" shall be paid to the firm and used by it for the purposes pro- posed by "B" and converted into pre- ferred stock for account of the three par- ties respectively. Thereupon "A" pro- posed and agrees to surrender one-fourth of his share of the common stock on the condition that it shall be distributed as follows: two parts to "C", two parts to "D" and one part to "E". These matters are all covered by writ- ten agreement of the five parties, in which agreement it is provided that "A" and "B" shall convey to the corporation all the property, business and goodwill of their co-partnership, and that all the transactions and stock distributions pro- vided for shall be carried through and be closed out in the books of the co-part- nership, including the sum of $5,000 which shall be advanced to enable the incorporators to pay fully their subscrip- tions for 10 shares each of the common stock of the corporation. A certified public accountant is engag- ed to make an examination of the books and accounts up to the close of the year just approaching; to procure appraise- ments of the property, and to close the books after providing therein for his compensation. On the completion of his work the books show the following condition : ASSETS ; Land '. $ 50,000.00 Buildings 200,000.00 Machinery, etc 100,000.00 Finished product, product in process, materials and supplies 150,000.00 Notes receivable 100,000.00 Accounts receivable 100,000.00 Cash 100.000.00 $ 800,000.00 LIABILITIES AND CAPITAL Real estate mortgage $ 100,000.00 Accrued interest on real estate mortgage 2,500.00 Notes payable on demand 50,000.00 Accrued interest on notes payable.... 1,000.00 Accounts payable 25,000.00 Accrued taxes 6,500.00 Reserve provision for uncollectible accounts 15,000.00 "A's" capital 400,000.00 "B's" capital 200,000.00 $ 800,000.00 Prepare \eash- book and journal entries to be placed on the books of the co-part- nership to represent properly thereon the carrying out of all the matters provided for in the agreement of the five parties and to close the books. GRADED CO RPORATION PROBLEMS CODE: OAK. Capital stock $ _^_ rru T^- u A 17 • ^ 13 • . Plant ....: 30,000.00 The Richardson Engraving and Print- ^^^^^ ^^ ^and, June ing Co., a corporation had an author- 1st, 1908 8,750.00 , -^1^1 £ cMrn AAA J u Accounts receivable.... 20,640.00 ized capital stock of $50,000 owned by Reserve for bad debts Wm. Richardson, $10,000 ; Silas John- Accounts payable CM c AAA J T-u A 4. <^oK Insurancc adjustment, son, $15,000, and Ihomas Acton, $25,- ^^^j^ 3 900 00 000. Engraving The plant was destroyed by fire Sept. Printing 23, 1908. All the books and records ^"^'ted .!'.:...".°.'.... ." were saved except the sales records. Merchandise pur- which were not written up for Septem- chases 57,800.00 ber. The insurance companies paid $28,- Wages ^'^fSS 000 on the plant and $7,000 on the stock, ^^^^^^^^ 5 75000 which was distributed to the stockhold- Profit and loss, sur- ers as received in proportion to their plus holdings. Cash was received from Sep- Wm. Richardson 7,000.00 tember sales amounting to $13,500. On |^^s^ "^Acton" 17 50000 Sept. 30th the trial balance disclosed the ' "" following conditions: $ 293,820.00 $ 293,820.00 $ 50,000.00 1,250.00 12,590.00 28,000.00 77,600.00 99,350.00 24,175.00 855.00 The accounts receivable realized $18,- 320 and the liquidation expenses were $1,850. The stockholders turned in their stock for cancellation and received their proportionate amount of cash. Prepare journal entries closing the books of the corporation and a profit and loss ac- count. GRADED CORPORATION PROBLEMS CODE: OAR. Assuming a scheme was on foot for the consoHdation of six competitive man- ufacturing companies engaged in the same Hne of business, and that you were invited to formulate a scheme for the valuation of the goodwill and assets of the respective companies that would be fair and equitable to all parties, out- line generally the plan you would recom- mend, dealing specifically and separately with — (a) goodwill; (b) plant and equip- ment; (c) inventories, of raw material, work in process and finished stock, re- spectively, and (d) accounts and bills re- ceivable. GRADED CORPORATION PROBLEMS CODE: OASIS. A corporation is organized to conduct a manufacturing business with a declar- ed capital of $2,000,000, divided into 20,- 000 shares of the par value of $100, of which 15,000 shares or $1,500,000 shall be preferred stock and 5,000 shares or $500,000, common stock. The corpora- tion proposes to issue $500,000 in consol- idated mortgage bonds to be used to- ward the purchase of sundry properties. The amount of capital with which the corporation begins business is $50,000, being the proceeds of subscriptions for 500 shares preferred stock. To carry out the purposes of said cor- poration, the real estate, water power, machinery, goodwill, etc., of certain ex- isting corporations have been purchased at an appraised valuation of $2,000,000, viz., Diamond Mfg. Co., $200,000; Eu-. reka Mfg. Co., $300,000 ; Champion Mfg. Co., $500,000; American Mfg. Co., $600,000 ; Aetna Mfg. Co., $400,000 ; and in payment full paid stock and bonds have been issued at par on a basis of 60% in preferred stock, 20% in common stock and 20% in bonds. Material and supplies are to be paid for in cash when their value is deter- mined. Formulate the entry necessary to open the books of the new corporation. ' ' .,.,...„...>,„ , ^ , ^ ^ _„.._!, ^ ..„....' ^ GRADED CORPORATION PROBLEMS CODE: OBLONG. The Great Northern Manufacturing Company was incorporated under the laws of the state of New Jersey, Feb- ruary 1, 1899, with a capital stock of $10,000,000, consisting of $4,500,000 (45,000 shares of $100 each) preferred 7% non-cumulative stock, and $5,500,000 (55,000 shares of $100 each) of common stock. On the same date $2,000 of the common stock was subscribed for at par as follows : By John Smith, 2 shares $ 200 Henry Brown, 4 shares 400 John Doe, 4 shares 400 Henry Rodman, 3 shares 300 Wm. Rodman, 7 shares 700 Total ■■$ 2,000 On February 4, 1899, these subscribers paid in to the company the amount of their subscription, and the stock was is- sued to them. February 15th the balance of the authorized capital stock of the company both preferred and common, was issued by resolution of the board of directors, to John M. Scott, for and in consideration of $750,000 in cash and 12 manufacturing plants. An inventory of the property purchased, made by author- ized representatives of the company, re- sulted in the following appraised valua- tions of the various plants and the stock on hand : Fac - Mat. Mer- Ma- lor- and chan- Real Build- chin- ies Sup. dise Estate ings ery A.... $ 430,000 $ 95,000 $ 195,000 $ 20,000 $ 98,000 B... 211,000 44,000 130,000 10,000 84,000 C... 495,000 38,500 475,000 11,000 62,000 U... 304,000 15,000 924,000 13,000 48,000 K.... 171,000 32,750 184,000 14,500 89,000 F.... 86,500 81,000 60,000 17,750 26,000 G.... 47.250 44,000 30,000 32,500 34,000 H... 98,000 35,750 20,000 14,600 62,000 1 101,250 11,000 10,000 17,200 11,000 J 37,000 13,000 11,000 19,200 35,000 K... 346,000 49,000 14,000 75,000 71,000 L... 121,000 67,000 37,000 34,750 44,000 $2,448,000 $526,000 $2,090,000 $279,500 $664,000 Open the accounts of the company so that the result of the operation of each factory will be known at the end of the company's fiscal year. The books of the company are not to show the appraised valuation placed on the real estate, build- ings, machinery, etc., by factories, but in one amount only ; and it is desired that the account include any expenditures in- curred by the company for goodwill, etc. Make opening entries in cash book, journal and ledger, covering in full the above transactions. GRADED CORPORATION PROBLEMS CODE: OBTRUDE. Two manufacturers producing the same class of wares and operating in ad- jacent territories decide to consolidate by incorporating a company to acquire the assets and business of both concerns, with an authorized capital of $500,000, half common and half preferred stock. The company so formed purchases the plant and other assets of the two vendors, subject to payment of $10,000, giving therefor its capital stock to the full amount authorized. In order to provide a working capital, the vendors donate one-fifth of both com- mon and preferred stock to the com- pany's treasury. The company sells four- fifths of the preferred stock so donated, at 90%, giving therewith a bonus of 50% of common stock. For the purpose of making needed betterments and exten- sions to the plant the company issues 20 >ear 6% gold bonds to the amount of SI 00,000, secured by a mortgage on its real estate, which bonds are sold to bank- ers at par, with a bonus of 10% pre- ferred stock and 30% common stock. Frame journal entries of the above transactions, showing the assets and lia- bilities consequent thereon. GRADED CORPORATION PROBLEMS CODE: OCCUPY. Three manufacturers each having an independent business and wishing to ef- fect a consolidation of their respective interests, organize the United States Manufacturing Corporation, with an au- thorized capital stock of $1,500,000, con- sisting of 7,500 shares of preferred stock and 7,500 shares of common stock of $100.00 each. They sell to the new com- pany 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 Man- ufacturing Corporation at par. The ven- dors donate to the treasury of the com- pany $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% common stock. For the purpose of raising additional funds for improvements and additions to plant, 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 bank- ers at 90%, giving as a bonus 10% pre- ferred stock and 20% of common stock. Draft entries to express correctly the above transactions on the books of the corporation, and prepare a statement of assets and liabilities of the company. GRADED CORPORATION PROBLEMS CODE: OCTAVO. Several manufacturers consolidate their interests and organize the ConsoH- dated Manufacturing Company with an authorized capital stock of $1,000,000, di- vided into 5,000 shares of common stock and 5,000 shares of preferred stock at $100.00 each, par value. The manufacturers sell to the company all of their assets subject to floating debts of $115,000, divided into notes payable $65,000, and accounts payable $50,000, for the sum of $1,000,000 payable $1,000 in cash, $499,000 in common stock and $500,000 in preferred stock. The com- pany agrees to pay the debts of $115,000. The active assets acquired are inven- toried by the Consolidated Manufactur- ing company as follows: real estate, $175,000 ; machinery, $200,000, and mer- chandise, $155,000. The patents and goodwill were inven- toried at a sum equal to the difference be- tween the net cost to the company of the assets acquired and the above valuation of the active assets. The company received $1,000 cash for 10 shares of common stock and for the purpose of providing funds for working capital authorized an issue of bonds amounting to $300,000 of which $300,- 000 were immediately sold as follows : $100,000 for cash at 80% and $100,000 for cash at par with a bonus of common stock amounting to $100,000. For the purpose of providing common stock to be given as a bonus, the man- ufacturers donated $200,000 of common stock to the treasury of the company. Prepare the journal and cash entries for the company, covering all of the above transactions, and prepare a bal- ance sheet of the company. GRADED CORPORATION PROBLEMS CODE: OFFICIAL. A proposition has been made for the taking over of three corporations char- tered by the State of Pennsylvania by a fourth corporation to be chartered by the same state. The following statement of affairs has been submitted by the three corporations proposed to be absorbed, and found to be correct : CORPORATION NO. 1. Capital stock (par value of shares, $25.00) $ 1,000,000.00 Treasury stock 100,000.00 Bonded indebtedness 500,000.00 Treasury bonds 50,000.00 Accounts payable 80,000.00 Bills payable 50,000.00 Cash 50.000.00 Accounts receivable 180,000.00 Bills receivable ■. 42,000.00 Supplies 18,000.00 Plant and franchise 1,250,000.00 CORPORATION NO. 2. Capital stock (par value of shares, $50.00) $ 1,000.000.00 Bonded indebtedness 500,000.00 Accounts payable 120,000.00 Bills payable 10,000.00 Cash 53,000.00 Accounts receivable 220,000.00 Bills receivable 80,000.00 Supplies 52,000.00 Plant and franchises 1,275,000.00 CORPORATION NO. 3. Capital stock (par value of shares, $25.00) $ 1,000.00 The proposition made to the three cor- porations is as follows : Each corpora- tion shall pay its own debts, and distrib- ute among its own stockholders whatever amount shall appear to the credit of profit and loss in closing their books, treating the statements rendered as be- ing correct as to values. The remaining assets are to be turned over to the promoters o"f the new cor- poration on the following terms : The capital stock of corporations Nos. 1 and 2 at 20% premium in cash, and $100,000.00 in cash be paid for the cap- ital stock of corporation No. 3. The bonds of the two corporations will be purchased at a premium of 5%. The proposition was accepted. Give closing entries of the books of the old corporations. Organize the new corporation with a capital of $1,000.00, and increase to such an amount as you may deem necessary, carrying the expenses of incorporation through your cash (estimated at $100), including $5,000.00 counsel fees. Provide for an issue of bonds sufficient to carry out this agreement, said bonds to be sold at 10% discount, and also pro- vide for $150,000.00 bonds in treasury, and give a balance sheet of the new cor- poration after the organization. GRADED COR PORATION PROBLEMS CODE: OILER. prices per M feet to remove from such Acting through an agent and trustee, lands all of the milling timber. The syn- a syndicate acquires the following assets dicate agrees to receive as consideration of two corporations as valued by ap- $1,500,000 of Lumber Company's pre- praisement and examination: ferred stock and $3,000,000 of its corn- Timber lands $ 1,500,000.00 $ 1,000,000.00 mon stock ?rTm:Vn!'logging '"^'"^"^ '^"'"^'"^ ^he syndicate also organizes "Land outfits 100,000.00 150,000.00 Company" and sells thereto the timber Mill structures and lands and stumpage contract made with equipment 200,000.00 250,000.00 Lumber Company and agrees to receive Materials and sup- ■^ntw^nn as consideration $1,500,000 of Land plies JU,LXA).00 30,000.00 ^ j c , ^ i i i ^.^ Logs 100,000.00 200,000.00 Company s first mortgage bonds and $1,- Lumber 230,000.00 320,000.00 400,000 of its capital stock. Bills and notes re- In organizing these companies the syn- „'=^^^b'^ 40,000.00 30,000.00 dicate paid into the treasury of Lumber counts 110,000.00 220,000.00 Company $500,000 in cash for a like amount of its common stock and into the $ 3,000.000.00 $ 3,000,000.00 treasury of Land Company $100,000 in This syndicate organizes "Lumber ^^^^ ^""^ ^ '^^^ ^"1°""^ of its capital Company" and sells thereto all of the S. ' , , , . , above property and accounts, excepting ^^^P^.^^. ^ ^^^^"^^ ^^^t* ^^ ^^^^ ^o"^" the timber lands. The syndicate also P^"^' g?^^"^ ^^^^^ ^o the organization makes a stumpage contract with the com- transactions and to the purchase made pany, conveying the right at stipulated ^y ^^^^ ^^°"^ ^^^ syndicate. GRADED CORPORATION PROBLEMS CODE: OLIO. The American Gas Light Company had operated a gas plant since the beginning of the year 1896. For the purpose of ac- quiring the industry, the National Gas Company was organized April 1, 1899, with a capital of $100,000, and after pur- chasing all of the capital stock of the American Company, issued $100,000 of first mortgage 6% gold bonds, dated April 1, 1899, due April 1, 1929, interest payable Jan. 1 and July 1 of each year. June 30, 1899, the two companies were united by a certificate of merger, and new books were opened. The accounts of the American Gas Light Company had not been closed at any time during that company's exist- ence, and at the date of the merger, stood as follows : ASSETS : Land and buildings, machinery, mains and franchises $ 82,360.73 Material and tools 1,856.30 Coal, including freight 47,540.45 Labor 50,668.73 Repairs 13,872.46 Water and other supplies 3,869.39 Superintendence 3,500.00 Salary, clerks and collectors 5,600.00 Office expense 2,100.00 Insurance 1,435.00 Taxes 4,237. 10 Interest 1 ,450.40 Cash 2,251.47 Consumers' accounts 3,210.44 Other accounts receivable 2,121.90 LIABILITIES : Capital $ 50,000.00 Bills payable 5,000.00 Accounts payable 2,679.81 Gas account 157,683.33 Coke account 6,210.69 Tar account 4,500.54 $ 226,074.37 $ 226,074.37 The inventory was as follows : Coal $ 400.00 Coke 150.00 Tar 100.00 $ 650.00 In acquiring the stock of the American Company, paying organization expenses etc., the National Company used all its capital stock and $90,000 first mortgage bonds, holding in reserve $10,000 of bonds for improvements. Make the necessary journal entries to open the books of the new company, and prepare a balance sheet dated June 30, 1899. Also prepare a profit and loss account showing the average annual results of the operations of the old company. GRADED CORPORATION PROBLEMS CODE: OMIT. 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 Uni- versal 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 com- pany, the old companies to pay off their own indebtedness. The appraised values of the old com- panies are as follows : SMITH YOUNG STAR Real estate and build- ings $ 680,000 $ 327,000 $ 126,000 Plant 390,000 160,000 71,000 Cash 15,000 3,000 1,000 Bills receivable 10,000 6,000 Horses, wagons and harness 4,000 3,000 1,500 Office furniture 1,000 1,000 500 $ 1,100.000 $ 500,000 $ 200,000 On this valuation the Universal Brew- ing Corporation issued $2,000,000 of stock, shares $100 each, which was di- vided pro rata among the old companies on the basis of their appraised value, no fractional shares of stock to be issued, odd amounts to be paid old companies in cash. Give journal entries necessary to set up the property accounts and credit old companies with their pro rata on books of the new company. GRADED CORPORATION PROBLEMS CODE: OMITTED. At the time of the consolidation the ledger accounts of the Star Brewery were as follows : ASSETS ; Real estate and buildings.... $ 250,000.00 Plant 247,000100 Cash 1 ,000.00 Horses, wagons and harness 1,800.00 Office furniture 1,200.00 $ 501,000.00 LIABILITIES : Capital stock $ 400,000.00 Bills payable 50,000.00 Accounts payable 51,000.00 $ 501,000.00 Make the proper journal entries to liquidate in stock of the new company the liabilities other than capital stock, to apportion the remaining stock and cash, and to close the books of the Star Brew- ery. GRADED CORPORATION PROBLEMS CODE: ONE. The stockholders of "A" Company and "B" Company have decided to form a new corporation ("C" Company), which is to take over all the assets and assume all the liabilities of both the old compa- nies. The holders of preferred stock of the old companies are to receive an equal number of shares of preferred stock of the new company. The holders of the common stock are to take common stock of the new company, at par, to an amount equal to the book value of their holdings in the old companies. Before determin- ing the book value of the old common stock, however, an amount equal to two per cent of the accounts and bills receiv- able of each company is to be deducted from its surplus and carried to a reserve account, to provide for contingent losses. The condition of the old companies is as follows : assets: "A" Co. "B" Co. Cash $ 20,231.74 $ 43,123.81 Accounts receivable 296,059.14 759,911.06 Bills receivable 8,245.08 35,342.09 Merchandise inventory.... 212,636.81 393,937.46 Land and buildings 42,689.42 174,156.97 Machinery 31,222.97 69,160.35 Furniture and fixtures.... 2,500.00 5,000.00 Investments 8,000.00 4,550.00 Prepaid taxes and ins 1,014.20 2,346.48 $ 622,599.36 $ 1,487,528.22 liabilities: Accounts payable $ 204,669.18 $ 244,168.44 Bills payable 86,844.10 227,454.72 Preferred stock 100,000.00 200,000.00 Common stock 150,000.00 400,000.00 Surplus . 81,086.08 415,905.06 $ 622,599.36 $ 1,487,528.22 The holders of common stock in the old companies are as follows : "a" CO. "b" CO. Smith 400 shares 1,200 shares Jones 300 || Brown 150 Black 50 " 2,000 " White 600 " Green 500 " Henry 300 " 1,500 " 4,000 " Draft the journal entries necessary to create the reserve accounts in the books of each of the old companies. Show the final book value of common stock of each of the old companies. Show the number of shares of common .stock of the new company to be received by each of the holders of common stock of the old companies. Prepare a balance sheet, showing con- ditions of "C" Company, after taking over the assets and liabilities of the old companies. GRADED CORPORATION PROBLEMS CODE: OOZY. It is proposed to organise a corpora- For the purpose of the issuance of tion for the purpose of acquiring the stock in the new company to the holders stock and controlling three existing cor- of stock in the three existing companies, porations, "A", "B" and "C", two of it is proposed to capitalize the latter upon which latter, "A" and "B", have been in the following basis: operation for five and three years, re- Money assets at double their value ; spectively, while "C" has been newly or- plant at 80% of book values ; material at ganized. The assets and liabilities of the 70% of book values ; annual net earnings several existing companies and the divi- at 8%, and liabilities at par. dends paid are as follows : The new company will be organized "^^^IV ..g,, . bonds, 5-year 500,000 300,000 (2) Cjive a short cnticism attacking Current Liabilities 75,000 100.000 the abovc basis of stock allotment and $ 735,000 $ 740,000 $ 500,000 submit a more equitable basis. DIVIDENDS paid: , "A" "B" "C" $ 120,000 $ 30,000 $ GRADED CORPORATION PROBLEMS CODE: OPERA. A company is incorporated for the purpose of acquiring and operating the plant and goodwill of three previously independent concerns, the authorized capital being $1,000,000.00, half of which is common and half preferred stock. The total stock and $100,000 are issued to the vendor, in payment of the several prop- erties acquired through him. The vendor disposes of $200,000 of preferred stock to bankers at par with a bonus of one share of common stock for each two shares of preferred stock, and he also sells $400,000 of the common stock at 50%. The price paid by the vendor for the three plants acquired are ( 1 ) $100,000 ; ( 2 ) $200,000 ; ( 3 ) $300,000, each of which is payable one-half in pre- ferred and one-half in cash. The properties are found to be in a "run down" condition and the company expends during the first year $75,000 in renewals and repairs to bring the plant to a state of efficiency, all of which is charged to revenue. On a review of the accounts it appears that only $15,000.00 of said outlay was for replacement and $60,000 is accordingly transferred to the plant account in the proportion of (1) $30,000.00, (2) $20,000.00, (3) $10,- 000.00. For the purpose of determining and separately stating the intrinsic plant val- ues and goodwill after the additional out- lay, the properties were appraised under four general divisions and the result of the appraisement was as follows : 12 3 "A" $ 25,000 $ 60,000 $ 85,000 "B" 75,000 100,000 175,000 "C" 2,000 5,000 7,000 "D" 8,000 18,000 25,000 $ 110,000 $ 183,000 $ 292,000 Frame the journal entries to open the books of the company in accordance with the above statement. GRADED CORPORATION PROBLEMS CODE: ORDURE. The Adams Company was organized July 1, 1905, under the laws of the State of Michigan, with an authorized capital stock of $100,000, divided into 1,000 shares of $100 each. Their operations have not been very successful ; their stock has never paid any dividends, and their capital, at present, is impaired. The stockholders at a meeting decided to re- organize the company, and for that pur- pose a committee was appointed to have the properties appraised and to take such measures as they would deem advisable. The condition of affairs as disclosed by the books is as follows : Real estate and buildings.. .$ 35,000.00 Plant and machinery 28,000.00 Equipment and fixtures 14,000.00 Tools 3,000.00 $ 80,000.00 INVENTORIES: Finished goods $ 27,500.00 Raw material 11,500.00 Supplies 5,300.00 44,300.00 Organization expenses $ 8,000.00 Less amount written off.... 3,000.00 5,000.00 Capital stock 100,000.00 Treasury stock 5,000.00 Bonded indebtedness 25,000.00 Treasury bonds . 5,000.00 •Accounts receivable 87,700.00 Notes receivable 17,800.00 Cash 3,200.00 Notes payable 26,200.00 Accounts payable 82,000.00 Loans payable 26,000.00 The Baker Company is a corporation also organized under the laws of this state, and in existence for the last five years. The capital stock of this com- pany is $150,000, divided into 1,500 shares of $100 par value. The company has paid an annual dividend of 9 per cent since organization, and their yearly net profits were as follows : First year $ 34,500.00 Second year 33,000.00 Third year 35,000.00 Fourth year 35,000.00 Fifth year 30,500.00 Having learned of the financial embar- rassment of the Adams Company, and desiring to get possession of their build- ings and real estate, which are adjacent to the Baker Company's property, they propose to the committee of the Adams Company that the two corporations be amalgamated. A consolidation agree- ment was drawn up, containing among others, the following provisions : (1) The charter of the Baker Com- pany is to be amended and the name changed to that of the Consolidated Man- ufacturing Company, the latter to absorb the stock of the Adams and Baker Com- panies, respectively. (3) The current assets of the Adams Company are to be taken over at their book value, except that a reserve of 5% be deducted on notes and accounts re- ceivable. (3) The fixed assets are to be taken over on the following basis : (a) Real estate and buildings at 15% increase of book value. (b) Plant and machinery at 85% of book value. (c) Equipment fixtures at 80% of book value. (d) Tools at 60% of book value. (e) Organization expenses are not to be considered at all. (4) The Consolidated Manufactur- ing Company to assume the liabilities of the Adams Company to the public, and to issue to the latter capital stock for the excess of the assets over the liabilities. If there be any fractional sum of $100 the Adams Company is to receive a full $100 share for such fractional part. (5) The assets of the Baker Com- pany are to be taken over at their book value, and, in addition, the company is also to be given stock for the goodwill, the latter to be based on the last three years' net profits, and is to be 60% of that total. (6) The Consolidated Manufactur- ing Company is to provide for a bond issue of $100,000, with which it is to take up the outstanding bonds of the Adams Company, and to sell the balance in order to raise cash funds ; the stock- holders of each respective company to have the privilege of taking the bonds at 96. (7) The Consolidated Manufactur- ing Co. to assume all liabilities of the Baker Co. to the public. GRADED CORPORATION PROBLEMS CODE : ORDURE— Continued. Assuming that the last balance sheet of the Baker Co. which is taken to pre- sent the true condition of this concern, discloses the following state of affairs : BALANCE SHEET OF THE BAKER COMPANY AS ON , 1908. CURRENT assets: CURRENT LIABILITIES: Cash $ 11,740 Notes payable $ 26,500 Notes receivable $ 9,350 Accounts payable 87,500 $ 114,000 Accounts receivable 74,030 $ 83,380 Less reserve for bad debts 4,169 79,211 Inventories: Raw material $ 9,840 Goods in process 8,750 Finished goods 121,550 140,140 Total of current as- sets $ 231,091 ^ ., , , , ^■''■•^^'- Ti^-^o nnn"-"^' Fixpn AssFTs- Capital stock $ 150,000 Buildings . . $ IS Surplus 101,00 251,000 Less depreciation 1,000 $ 19,000 Plant and machinery $ 85,700 Less depreciation 8,570 77,130 Equipment and fixtures.. $ 34,900 Less depreciation 3,490 31,410 Tools (revalued) 6,369 6,369 Total of fixed assets.... 133,909 $365,000 $365,000 You are required to give : (a) Closing entries for the Adams Co. (b) Journal entries for the Consolidated Manufactur- ing Co. covering capitalization, issue of bonds — taking for granted that the stock- holders of the Adams and Baker Co. took advantage of their rights with regard to purchase of bonds — and also payments to be made to the state and county au- thorities, (c) Balance sheet of the Con- solidated Manufacturing Co., placing the assets of Adams Co. at the value as shown by the latter's books, crediting the difference between the price paid for them and the revaluation to goodwill paid to the Baker Co. GRADED CORPORATION PROBLEMS CODE: OPERATE. The composition of the values of the books of the three old companies ab- sorbed as stated in the preceding problem were: assets: 1 Property sold $ 80,000 Book accts., not sold.. 1,000 $ 163,000 3,000 3 282.000 5,000 $ 81,000 i 166,000 $ 287,000 liabilities: 1 Bills and accounts set- tled by old company,$ 49,000 Undivided profits 2,000 Capital stock 30,000 $ 100,000 6,000 60,000 $ 189,000 8,000 90,000 81,000 $ 166,000 $ 287,000 Frame the journal entries for closing the books of the old companies accord- ing to the above statement. GRADED CORPORATION PROBLEMS CODE: OPTIC. A merger was made of six corpora- tions with the following assets : FIRST CORPORATION. ASSETS : Plant and franchises .' $ 600,000.00 Cash 20,000.00 Book accounts receivable 100,000.00 Supplies 10,000.00 ! rAPILITIES : v^jioit^ril stock * Common ($50.00) $ 200,000.00 Preferred 200,000.00 Bond account 250,000.00 Book account payable 30,000.00 SECOND CORPORATION. ASSETS : Plant and franchises $ 1,000,000.00 Cash 30,000.00 Book accounts receivable 180,000.00 Supplies 40,000.00 LIABILITIES : Capital stock ($50.00) $ 500,000.0) Bond account 750,000.00 Book account payable 50,000.(X) The other four corporations each had a capital stock of $1,000, of which $100 each was paid for organization expenses, leaving a balance in cash in the treasury of each company of $900. A corporation was formed to purchase all the capital stock of the merged cor- porations, and create a bond and mort- gage sufficient to retire the outlying bonds of the corporations merged, to- gether with the capital stock and bonds of the following corporations having the following assets and liabilities : "A." ASSETS 1 Plants and franchises '. $ 1,000,000.00 Book accounts receivable 70,000.00 Cash 50,000.00 Supplies 10,000.00 LIABILITIES : Capital stock $ 500,000.00 Bonds 500,000.00 Book accounts payable 80,000.00 "B." ASSETS : Plant and franchises $ 10.000.00 Cash 5,000.00 Book accounts receivable 3,000.00 Supplies 1 .000.00 LIABILITIES : Capital stock ($50.00) $ 10,000.00 Bond accounts payable 5,000.00 In addition to the new corporation be- ing the holding corporation of the stock of the above corporation, a merger of three other corporations was made, the business to be carried on under the name of the new corporation formed, and the combined assets and liabilities of the cor- poration so merged were as follows : ASSETS : Plant and franchises .' $ 2,500,000.00 Cash 50,000.00 Book accounts receivable 100,0(X).00 Supplies 20,000.00 LIABILITIES : Capital stock ($50.00) $ 1,000,000.00 Bonds 1,500,000.00 Book accounts payable 150,000.00 It was agreed to purchase the stock of the above corporations at the following rates, to be paid for in stock of the new corporation : (Corporation No. 1 at 20 shares new company for one of old. Corporation No. 2 at 9 shares new company for one of old. The four other companies par $20.00 share for share and corporation "A" share for share. Corporation "B," 2 shares of new company stock for one of old. The capital stock of the other three corporations which the new company proposed to operate were exchanged .share for share. All of the expenses of both mergers and organization of the new corporation amounting to $50,000 were to be paid by the new corporation, and it was agreed that bonds amounting to $1,000,000 should be issued to be used in betterments of the corporations of which they had purchased the entire cap- ital stock. ■ Show entries for opening the books of the first six corporations merged. Pro- vide capital stock and bond issue to cover the requirements above stated and show- opening entries for new corporation. GRADED CORPORATION PROBLEMS CODE: ORDER. The following is abstracted from an agreement of merger and consolidation made Dec. 31, 1908, between the Penn- sylvania 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. The name of the corporation hereby formed by said consolidation shall be crte 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 man- ner 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 bal- ance of the capital stock of the new cor- poration hereby formed shall be distrib- uted 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 merger, and had trans- acted 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 num- ber of years been actively engaged in business. Its fiscal year ended Sept. 30, 1908, at which time an inventory was taken, and its accounts had been prop- erly closed. At the date of the merger the following trial balance was drawn from the books : DEBITS CREDITS Cash $ 20,000.00 $ Accounts receivable 15,000.00 Mdse. inv., Sept. 30, 1908 130,000.00 Mdse. purchases 250,000.00 Expenses 25,000.00 Accounts payable 10,000.00 Sales 300,000.00 Capital stock 30,000.00 Undivided profits, balance Sept. 30, 1908 100,000.00 Totals , $ 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 ex- change of capital stock was effected and all business after Dec. 31, 1908, was transacted under the name of the Penn- sylvania Tool Co. It was not until March 31, 1909, that an accountant was asked to state the accounts of the new company from the date of consolidation. At March 31, 1909, before the account- ant had commenced his work, an inven- tory 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, 1909. DEBITS CREDITS Cash $ 26,000.00 $ Accounts receivable 10,000.00 Mdse. inv., Sept. 30, 1908.... 130,000.00 Mdse. 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 Totals ■■$ 826,000.00 $ 826,000.00 Prepare a balance sheet of the consol- idated company as at March 31, 1909, and the profit and loss accounts arrang- ed to show the profits of the consolidated company for three months ending March 31, and of the Keystone Tool Co., for three months ending Dec. 31st ; also state- ments showing the disposition of profits taken over by the new company. State what basis you make use of in determining the approximate value of merchandise on hand at Dec. 31st. GRADED CORPORATION PROBLEMS CODE: ORIENTAL. The Gendron Corporation operates Coal Mines, Saw Mills, a Log- ging Railroad and have their own timber holdings. All of the accounts are kept in one large ledger, with the usual books of original entry, at the general office in New York. They engage the services of yourself to audit the books for the year ending June 30, 1909. The following is a copy of the Trial Balance. QENDBON COBFOBATXON. Trial Balance— Jnne 30, 1909. Plant Equipment — Mine A $ 31,955.26 New Plant— Mine 7 62,173.27 Stumpage, cut for sawmill 7,524.26 Capital Stock ?581,500.00 Betterment to Mines 3 and 4 2,783.42 Local Purchase Logs 51.66 Sawmill Repairs 1,360.31 Cash 7,436.05 Development — Mine No. 1 3,822.37 Timber and Land 240,305.26 Planing Mill Repairs 341.43 Accounts Receivable 76,421.91 Mine Engineering Tools — Mine 1 225.00 Petty Cash — Mines 750.00 Lumber — Outside Purchases 79.20 Lighterage on Lumber 57.95 Mine Administrative Salaries and Supplies 2,195.22 Petty Expenses at Mines 1,649.28 Tenant Houses at Mines 2,117.22 Lumber, Logs, Etc., on Hand 50,853.60 Sawmill Pay Roll 4,141.41 Planing Mill Pay Roll 2,421.95 Commissary Purchases — Lumber 8,642.58 Feed and Labor — Mine Stables 925.75 Electrical Repairs at Mine 467.97 Commissary Pay Roll — Lumber 726.65 Logging Pay Roll 200.00 Unexpired Insuiarce Premiums 3,918.49 Mine Cars 6,139.78 Lath Mill Pay Roll 249.65 Electrical Plant — Mine 3,190.00 Interest on Loans Covering Mine Plant Construction 7,226.73 Mines Warehouse — Stock on Hand 1,743.22 Lath Mill Repairs 7.27 Railroad Equipment 74,710.38 Railroad Pay Roll and Expenses 2,241.86 Camp Equipment 22,192.34 Camp Pay Roll 1,549.75 Yard and Shed Repairs 112.10 Logging Railroad Track 47,769.13 Office Salaries — Lumber 1,021.67 Unclaimed Miners' Wages 246.17 Coal Sales 57.280.78 Building Material on Hand at Mine 810.75 Interest on Funds to Develop Mine No. 1 240.00 Mine Office Furniture and Fixtures 1,459.17 Mine Officer's House Furnishings 513.29 Mine Railroad Track and Switches 3,916.82 Telephone Line — Mill to Woods 436.56 Freight on Logs to Sawmill 1,614.40 Camp Boarding House Equipment 1,500.00 Interest ^d Discount — Lumber 422.09 Mine Store Expense and Labor 2,472.83 Mine Store Freight 472.98 Sawmill Machine Shop 2,328.53 Outside Investment 1,949.90 Advanced to New Coal Corporation 1,373.27 Mill Plant 324,982.92 Lumber Sales 28,033.11 Lath and Shingle Sales 2,392.45 Insurance — Mill 85.30 Operation Chicago Office — Lumber 1,000.00 Allowances and Discounts — Coal Shipments 637.40 Repairs and Expenses — Mine Stables 124.22 Mine Office — Salaries and Supplies 1,562.23 Mine Eng. — Salaries and Supplies — Mine No. 1.. 625.00 GRADED CORPORATION PROBLEMS CODE : ORIENTAL— Concluded. Traveling Expenses — Mine Manager 221.67 Interest — Current Loans at Mine 125.00 General Office Expenses — Lumber 853.80 Discount on Lumber Sold 1,931.60 Bills Payable 172,667.50 Accounts Payable — Audited 24,287.03 Bonds on Timber Lands 35,000.00 Taxes — Mines 178.53 Insurance — Mines 1,271.11 Legal Expense — Mines 785.00 Royalty on Coal Mined 4,989.77 Mining Labor 29,871.23 Surplus 195,764.45 Sales of Wood 186.00 Rent of Dwellings and Miscellaneous Income — Lumber 278.00 Yard Filling and Tunnel Extensions at Mines. . . 2,743.22 Delivery of Coal to Tipple 3,571.28 Maintenance of Way — Mines 710.11 Maintenance of Air — Mines 739.10 Props, Ties and Caps 497.17 Mine Foreman — Salary 800.00 Maintenance of Mine Cars 209.38 Mine Machinists and Engineers Wages 1,378.78 Smithing — Mines 672.10 Fuel — Mine Power House 297.51 Removal of Slate 551.98 Deadwork at Mines 47.21 Electrical Supplies at Mines 2,488.55 Insurance During Construction of Mine Plant. . 937.97 Norfom & Western Ry. Claim§ at Mines 71.59 Repairs to Miners' Houses 171.19 Legal Expense^ — In re Right of Way to Mines. . . 342.68 Live Stock at Mine 3,850.00 Taxes During Construction of Mines Plant 313.71 Mine Commissary Purchases 8,427.60 Rental from Miners' Houses 1,572.27 Cartage and Sale of Coal to Tenants 70.09 $1.099,277.85 $1,099,277.85 They have agreed to a plan whereby the Coal Mine operations will be taken over by a new corporation and therefore ask that you separate the Lumber and Coal Accounts, make up a separate set of statements in detail to cover each business (Balance Sheet, Surplus Account, Profit and Loss Account and Statement of Operations). The Capital Stock to stand as part of the Lumber Accounts. You find as follows: (1) Bills Receivable Account was balanced and closed, but among the records and papers of the company, you found Bills Receivable for Lumber Accounts amounting to $2,791.17 previously charged off, but now considered good and collectible. (2) Mine No. 1 is in a state of development and has not been as yet operated. (3) Of the Accounts Receivable, $15,180.92 cover coal shipments. (4) Of the Bills Payable, $50,725.00 cover mine investments. (5) Unexpired Insurance Premiums include $726.10 on mine policies paid for account of the new corporation. (6) Taxes paid in advance $78.53 on mine properties. (7) Of the surplus before closing the accounts $98,958.44 arises from mine operations prior to the year ending June 30, 1909. (8) Of the Accounts Payable, $12,790.79 cover mine bills auditeu Show the necessary journal entries to adjust the accounts in accordance with the foregoing explanations. GRADED CORPORATION PROBLEMS CODE: ORIENTALIST. The Potlatch Lumber Mfg. Co. is incorporated for $1,500,000.00, of which the Gendron Corporation subscribed for 25%, the Block Lumber Co., 50%, and the Columbia River Lumber Co., 25%. The Potlatch Co. agreed to take over the lumber business of each of the three concerns named. It is understood that balances due to the contributing com- panies on purchase account are to be applied as part payment of their stock subscription. (a) The Gendron Corporation agrees to dispose of its plant for $250,000.00, reserving its timber holdings; railroad and other equip- ment; amount due from Black Diamond Fuel Co. on account of mining department advances and $8,000.00 of Accounts Receivable not con- sidered collectible. Also it assumes all liabilities except Accounts Payable. (b) The other companies submit the following Balance Sheets: BXiOCK I.UMBEB CO. Balance Sheet. Cash on Hand and in Bank $ 6,410.81 Bills Receivable 2,131.55 Bills Payable $77,191.94 Lumber, Logs, Etc 52,176.59 Unexpired Insurance Premiums 1,317.58 Mill Supplies and Extras 819.26 Teams 2,859.65 Standing Timber and Lands 300,000.00 Accounts Payable 15,197.94 Surplus 401,321.76 Mill Plant 60,500.00 Accounts Receivable 67,496.20 $493,711.64 $493,711.64 COI.UMBIA BIVEB IiUMBBB CO. Balance Sheet. Cash $ 438.72 Bills Receivable 6,008.91 Lumber, Logs, Etc 97,303.43 Unexpired Insurance Premiums 417.93 Mill Supplies, Etc 742.59 Teams 62.50 Bills Payable $39,604.38 Standing Timber and Lands 42,811.83 Tug Boat 2,019.39 Outside Investments 6,300.00 Mill Plant 30,000.00 Accounts Payable 7,912.84 Surplus 172,093.42 Accounts Receivable 33,505.34 $219,610.64 $219,610.64 (1) Draft opening entries for the Potlatch Lumber Mfg. Co. (2) Prepare Balance Sheet after books have been opened. (3) Draft closing entries for the Gendron Corporation. (4) Prepare General Balance Sheet of the Gendron Corporation after so doing. GRADED CORPORATION PROBLEMS CODE: ORIENTALISM. The Black Diamond Fuel Co. secures a charter and capitalizes with an authorized issue of $250,000.00 Common Stock and $200,000.00 o< Preferred Stock. The Common Stock is subscribed for as follows : The Gendron Corporation $150,000.00 W. "Wilson 50,000.00 A. Smith 50,000.00 on the following terms: (a) The Gendron Corporation to transfer all assets and liabilities as shown by your statement covering the mines property to the Black Diamond Fuel Co. Any equity to apply as part pajrment on the sub- scription, balance to be paid on call. (b) Wilson and Smith each to pay $25,000.00 in cash, balance on call. Show the proper entries: (1) To make the transfer on the books of the Gendron Corpora- tion, and (2) Entries to open books of Black Diamond Fuel Co. and balance sheet after so doing. GRADED CORPORATION PROBLEMS CODE: ORISON. In accordance with the provisions of a plan drawn by its prospective manager, a syndicate is created for the purpose of obtaining control of certain business in- terests at present organizing in a neigh- boring state. The members of the syn- dicate have in consequence contributed $1,500,000 in cash, which, pending devel- opments, has been invested in railway bonds, acquired at par, and placed in the hands of a trustee. In due course the trustee enters into an agreement with the A. K. Company, organized with an authorized issue of $3,- 500.000 of capital stock, of which 2,000 shares have already been subscribed to and paid for by incorporators and oth- ers. According to the terms of the agree- ment, the trustee is to deliver to the com- pany the securities that he holds, plus $700,000 in cash, in exchange for the company's potential stock. In case, how- ever, the trustee should fail to pay the cash into the company's treasury within 30 days, he is to return to the company two shares of stock for every $100 of cash not paid. The members of the syndicate having failed to respond to the demand of the trustee for additional contribution, the syndicate is dissolved, and the trustee, un- able to pay any cash, returns the stock to the company. Simultaneously a second syndicate is formed under the same management. It contracts to purchase at par the securi- ties held by the A. K. Company, in con- sideration of a bonus of 3-5 of the shares of stock surrendered by the first syndi- cate. Half of the purchase price is paid at once, the other half is payable one month later, i. e., June 30, 1911. Prepare (a) the journal entries ex- pressing the above facts on the books of the A. K. Company, (b) the balance sheet of the company at May 31, 1911. GRADED CORPORATION PROBLEMS CODE: ORTHODOX. A syndicate formed for the purpose of acquiring controlling interests in several manufacturing companies, had pooled the sum of $1,200,000, and the securities purchased therewith had been placed in the hands of a trustee. A company was organized with a sub- scribed capital of $5,000,000 (shares $100 each) of which $2,000 was paid in cash. By the terms of an agreement entered into between the company and the trus- tee 49,980 shares of stock were to be is- sued to him for all the securities held by him, and $624,375 in cash was to be paid by him to the company, provision being made, however, that in case the trustee failed to pay the required amount of cash. he was to turn back to the company 3 1-5 shares of stock for each $100 that he fail- ed to pay. The trustee being unable to pay any cash, returned stock in lieu thereof, as provided. The company then offered the mem- bers of the syndicate $3,000 in securities at par, and 25 shares of stock for each $3,000 contributed to a second pool of $1,200,000. This oflFer was accepted and half of the second pool paid in, securi- ties and stock being issued as agreed. Make entries for the books of the com- pany which will give proper expression to the foregoing transactions. Prepare a balance sheet. GRADE D CORPORATION PROBLEMS CODE: OSMOSE. corporation no. i. The following statement of affairs Cash $ 48,ooo.oo 1 • 1 .1 , . . Plant 450 000 00 which was taken as being correct, was Supplies go^oooioo made to proposed underwriters, for the ^°°^ accounts receivabl e. i84,'ooo.oo $ 772,000.00 consoHdation of four corporations, un- Bonds $ 350,000.00 der a corporation to be formed to take ^'p'*"' ''°'^ - s^o.ooo.oo $ 700,000.00 over all the four corporations. ^ , corporation no. 3. It was understood and agreed that the Plant 820,000.00 stock of Corporation No. 1, par value of lo^fa'ccounts •receivable-; 270%ZoO $ 1,240,000.00 which was $100.00, should be purchased , (tlQKnn 1-1 Capital stock $ 850,000.00 ar cpioo.uu per snare. Bonds 390,000.00 $ 1,240,000.00 SS°nn^'°" ^°- ^ '*°^^' P^' $100.00, corporation no. 3. at $130.00 per share. Cash $ 28,000.00 Corporation No. 3 stock, par $50.00, slfppks"::::::;:;:;;;:.":::;::.::;::;: ImoHo at $50.00 per share. Book accounts receivable. 135,000.00 $ 625,000.00 Corporation No. 4 stock, par $25.00, Bonds $ 280,000.00 at $41 00 per share Capital stock 350,000.00 $ 630,000.00 It was also agreed by the underwriters . corporation no. 4. that they would advance sufficient money pfant i 475'ooo'oo to purchase said stock, the whole of the |rk"accounts-rec^i^able: 432:000.00 $ 2,103,000.00 stock of the proposed corporation to be turned over to them, together with $200,- ffif .!*!?..::;:;:::::::."::::::.'^ i.sKoToo $ 2,040.000.00 000.00 of the bonds of the new company. ; — . That sufficient bonds be issued to re- ^orm the new corporation with suffi- tire the bonds of the old corporations ^^^^^ ^^^"^^ ^"^ "^onds, the bonds to draw and provide for $500,000.00 of treasury ^% interest to meet the requirements of bonds to be used in betterments. ^^'^ agreement, charging into plant ac- In addition to the above, it was agreed ^^""t ^^^ t^^^^ and bonus due the State that the underwriters would purchase at «* Pennsylvania on formation of corpo- least $250,000.00 of the new bonds at '"^^^o"' estimated at $2,000, together with g^% a counsel fee of $20,000, as well as other It was agreed also that the par value compensation under this agreement, and of the stock of the new corporation ^^^e a statement showing the result, should be $100.00 per share, and that -^^ ^^e end of the year it is found that sufficient stock should be issued to cover $250,000 of the bonds of the corporation 20% more than the cash outlay of the have been sold to the underwriters and underwriters for the purchase of the "^^^ ^^^ betterments, stock of the old corporations. The results of the business for the first It was also agreed that the new cor- year show a profit of $1,000,000 after poration should take over the assets of charging 10% for depreciation on plant, the old corporations, but that each of the Declare such a dividend as in your old corporations should be clear of in- judgment is reasonable, crediting surplus debtedness except for bonds issued. with whatever balance remains, and give The assets turned over to the new cor- a statement of condition, using your own poration were to be as follows : figures in ascertaining profit. GRADED CORPORATION PROBLEMS CODE: OSTRACIZE. "A. B." acquires all the shares of the capital stock of the Vendor Water Com- pany and in order to reorganize it, forms the Purchaser Water Company with an authorized capital stock of $1,000,000, divided into $500,000 common and $500,- 000 preferred stock. Bonds amounting to $1,000,000 are also authorized by the Purchaser Company. A contract is ex- ecuted between "A. B." individually and the Vendor Water Company by which the latter, for a cash consideration, trans- fers to "A. B." all its property subject to its existing debts. "A. B." then sells the property acquired from the Vendor Water Company to the Purchaser Wa- ter Company for the sum of $1,999,000 payable $1,000,000 in bonds, $500,000 in preferred stock and $499,000 in common stock of the Purchaser Water Company. The Purchaser Company also agrees to pay all existing debts of the Vendor Com- pany. The board of directors of the Purchaser Company appraise the acquir- ed plant at a valuation equal to the dif- ference between the sum paid for the total assets of the old company plus lia- bilities assumed and the value of the as- sets acquired exclusive of the plant. The Purchaser Company receives in its treas- ury $1,000 cash from "A. B." for 10 shares of stock issued. Frame the opening journal and cash book entries of the Purchaser Water Company and prepare the balance sheet of the Purchaser Company from the en- tries. The balance sheet of the Vendor Com- pany on the date of the transfer was as follows : ASSETS :' Plant $ 1,253.000.00 Cash 17,000.00 Notes receivable 6,000.00 Accounts receivable 85,000.00 Materials in stock 35,00000 Unexpired insurance 1,000.00 Interest paid in advance on notes payable 3,000.00 Trust company , deposit to pay coupons 250.00 Stock of other companies 80,000.00 Total assets $ 1,480,250.00 Deficit 3,848.00 $ 1,484,098.00 CAPITAL STOCK AND LIABILITIES : Capital stock $ 1,000,000.00 Bonds 200,000.00 Notes payable 150,000.00 Accounts payable 70,000.00 Meter deposits 1,848.00 Accrued interest on bonds 5,000.00 Coupons payable 250.00 Reserve for bad debts 7,000.00 Reserve for depreciation of plant.... 50,000.00 $ 1,484,098.00 GRADED CORPORATION PROBLEMS CODE: OSTRICH. The Alpha Company is organized for the purpose of acquiring a tract of land and forming an amusement resort. Its capital is $50,000. This stock is prac- tically all issued in exchange for deeds for parts of said tract and for long term leases covering the remainder of tract, these leases containing, in all cases, clauses giving the Beta Co. or its as- signs, the right to purchase at prices named in the leases and aggregating $74,620.00, on which six per cent is to be paid as rental ; taxes to be paid by the Alpha Company. The Alpha Company made a deed of trust for $150,000 on all its equities to secure bonds, and issued $72,000 of such bonds in April, 1906. It made a further issue of similar bonds to the amount of $54,000 in April, 1907. With the pro- ceeds of such bonds it improved its prop- erty and erected a number of buildings at a cost of $110,000. In April, 1907, it entered into an agree- ment with the Beta Co. to take charge of the grounds, arrange entertainments, etc. This necessitated further improvements, which were to be paid for by the Beta Co. ; this company, however, had no mon- ey, so the Alpha Co. advanced $10,000 to Beta Company, taking therefor the note of the latter company. The Beta Company finally failed with no assets except the buildings it had erected on the Alpha Company's land, and still owing Alpha Co. for the said note, besides owing many other creditors. The Alpha Company now operated the amusement park on its own account. This involved further loss ; and its balance sheet on the 30th of June, 1907, showed as follows : ASSETS : Buildings $ 100,000.00 Real estate 20,000.00 Note of Beta Co 10,000.00 Equities on leases valued at 100,000.00 Loss 40,62000 $ 270,620.00 LIABILITIES : Capital stock $ 50,000.00 Bonds— first issue 72,000.00 Due on leases 74,620.00 Bonds — second issue 54,000.00 Accounts payable 15,000.00 Mortgage interest, overdue 5,000.00 $ 270,620.00 The Alpha Company then concluded negotiations with the Gamma Co., an electric car line company, whose line af- forded the chief means of access to the property in question. This company had an authorized capital stock of $50,000, all being issued. The Alpha Company admitted its sol- vency, and a majority of its stockholders agreed to surrender and cancel their stock, and to exchange their bonds in the Alpha Company for stock in the Gamma Company. All the property of the Alpha Co. was to be transferred to the Gamma Co., which was to assume all its liabilities, and was to increase its authorized capital to $150,000, and to issue bonds on all its property for $100,000, and, out of the proceeds of these bonds, to take up the bonds of the Alpha Co. and pay off all indebtedness of Alpha Co. and to pay off its own indebtedness and develop the combined enterprises. The Gamma Company owned an ex- clusive franchise for its car line, which, owing to local conditions, was safe from competition. This line, with equipment, cost $50,000. The yearly net profits were $30,000, and were likely to increase. It valued its franchise at $250,000. It had the real estate owned by the Alpha Com- pany appraised by six independent real estate experts, the lowest valuation be- ing $600,000, and the highest $700,000. Gamma Company had outstanding ac- counts payable amounting to $15,000. State the steps required to legalize the transfer of the business of the Alpha Company to the Gamma Company. Prepare the balance sheet of Gamma Company after the transfer had been made, criticising any items calling for special attention. GRADED CORPORATION PROBLEMS CODE: OUTCLASS. Business corporation "A" operates a manufacturing plant and controls by ownership the entire capital stock of bus- iness corporations "B" and "C". The product marketed by each is different from that marketed by the other two, yet each utilizes some of the product of the others and regularly receives and pays the invoices therefor. "A" who owns the land on which the three plants are situated, charges rent to the other two companies and furnishes and charges them with power, heat and light. On ac- count of insufficiency of capital, "B" and "C" are constant borrowers from "A" and pay interest on such loans. The profit or loss of "B" and "C" is taken over by "A" at the end of each year, the fiscal periods of the three being the same. It is desired that the accounts shall be kept so that the three trial balances before closing will permit of making, without analysis of any accounts, a con- solidated statement of operations and a consolidated balance sheet for the annual report of corporation "A", in addition to the separate statements of each, that will exclude all accounts growing out of the inter-relations of the three companies and will make the same representation in the classified accounts as though the prop- erties were owned directly by Company "A" and all of the affaris and operations conducted by Company "A". State gen- erally how such conditions may be brought about in the three trial balances. GRADED CORPORATION PROBLEMS CODE: OUTFIT. In making up a consolidated balance sheet of a holding or parent company and two subsidiary companies where, in the case of one of the subsidiary com- panies its entire capital stock has been ac- quired at less than par, and in the case of the other, at a substantial premium, how would you deal with such discount and premium, respectively, in the consoli- dated balance sheet? In the event that all the stock of one of the subsidiary companies was not owned by the parent company, how should such proportion of said stock be- longing to the minority stockholders, to- gether with the proportion of surplus ap- pertaining thereto, be stated in the bal- ance sheet? GRADED CORPORATION PROBLEMS CODE: OUTFLOW. A parent company holding notes re- creating a contingent liability thereunder, ceivable from a subsidiary company to In preparing a consolidated balance sheet the extent of $100,000.00 endorses and of the two companies, state how and discounts said notes with its bankers, thus where the liability would appear. GRADED CORPORATION PROBLEMS CODE: OUTMAN. Between July 1 and July 31, 1910, the Company C was incorporated in May, following transactions occurred : Organ- 1910, to acquire the stock of Companies ization expenses paid in cash by Com- A and B. Company C's capital stock is pany C $5,000; intercompany advances divided into preferred $2,500,000, com- by C : to A $60,000, to B $60,000 ; Com- mon $1,500,000; all the stock is out- pany A reduced its accounts payable by standing and fully paid ; it has been is- $25,000 ; its loans payable by $30,000 and sued (a) for stock to the stockholders its audited vouchers by $15,000; Com- of Companies A and B, (b) $20,000 of pany B reduced its accounts payable by preferred for organization expenses, (c) $29,500, liquidated its audited vouchers for cash. The stockholders of A and B unpaid and its interest due under the received preferred stock for the intrinsic, bonds. undepreciated book value of the assets, The manufacturing operations of the as reflected by the following balance period show : Company A — labor $10,- sheets of their companies at June 30, 000 ; overhead expense $8,000 ; materials 1910, and $300,000 of common stock di- consumed $9,886 ; inventory of goods in visible equally to Companies A and B : process $46,300, of finished goods $50,- "a" "b" 'i'40; selling expenses paid $1,600; ad- ?^nkr!s'tde;,;^enCZZ::^ sBoo ^ sSooo ministration expenses $2,500; sales $72,- Machinery and tools 228,600 376,800 500 ; CollcctioUS of OpCU aCCOUUtS $86,400. Transportation equipment 21,000 17,000 r- t) i u cno ^rvo i i rs^ Investment in land 150,000 Company B — labor $3,600 ; overhead $2,- Investment in bonds— Co. "B" 60,000 "^KO • mafprialc