Equity transfer procedures with alternative facts. New Company wishes to obtain total control over one of its suppliers, Thompson Corporation. New Company is offering to exchange 120,000 shares of its common stock on a 1 to 1 basis for Thompson’s common stock.
Thompson Corporation has the following balance sheet on December 31, 20X1:
|
Thompson Corporation |
|||||
|
Assets |
Liabilities and Equity |
||||
|
Accounts receivable |
$275,000 |
Accounts payable |
$275,000 |
||
|
Inventory |
400,000 |
Stockholders’ equity: |
|||
|
Property, plant, and equipment: |
Common stock ($5 par, 120,000 shares outstanding) |
$600,000 |
|||
|
Land |
$125,000 |
Paid in capital in exess of par |
200,000 |
||
|
Building |
950,000 |
Retained earnings |
494,500 |
1,294,500 |
|
|
Accumulated depreciation |
180,500 |
894,500 |
|||
|
Total assets |
$1,569,500 |
Total liabilities and equity |
$1,569,500 |
||
Thompson Corporation has been depreciating its building using the double declining balance method. New Company intends to use the straight line method, which it uses for its own assets. Had the straight line method been used by Thompson Corporation, the depreciation charges would have been $90,000.
The transaction meets all of the pooling criteria. The stockholders’ equity of New Company on January 1, 20X1, is as follows:
|
Common stock ($2 par value, 400,000 shares outstanding) |
$800,000 |
|
Paid in capital in excess of par |
100,000 |
|
Retained earnings |
700,000 |
Required
Support all work with equity transfer diagrams. (Ignore tax effects.)
1. Record the pooling of interests on the books of New Company.
2. Assume, instead, that New Company has 100,000 shares of $8 par value common stock outstanding. Record the pooling of interests on the books of New Company if it issues 100,000 new shares.
3. Assume, instead, that New Company has 50,000 shares of $16 par value common stock outstanding. Record the pooling of interests on the books of New Company if it then issues 60,000 shares to acquire Thompson. All other equity items remain unchanged.