Answered: a. What percentage of the total assets…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 20BEA: The income statement, statement of retained earnings, and balance sheet for Somerville Company are...

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Scully Corporation holds enough stock in company A and company B to give it voting control of both firms. Consider the accompanying simplified balance sheets for these companies,

Assets		Liabilities and Stockholders' Equity
Scully Corporation
Common stock holdings		Long-term debt	$37,000
Company A	$41,000	Preferred stock	20,000
Company B	57,000	Common stock equity	41,000
Total	$98,000	Total	$98,000
Company A
Current assets	$99,000	Current liabilities	$101,000
Fixed assets	400,000	Long-term debt	200,000
Total	$499,000	Common stock equity	198,000
		Total	$499,000
Company B
Current assets	$179,000	Current liabilities	$101,000
Fixed assets	722,000	Long-term debt	501,000
Total	$901,000	Common stock equity	299,000
		Total	$901,000

a. What percentage of the total assets controlled by Scully Corporation does its common stock equity represent?

b. If another company owns 14.8% of the common stock of Scully Corporation and, by virtue of this fact, has voting control, what percentage of the total assets controlled does the outside company's equity represent?

c. How does a holding company effectively provide a great deal of control for a small dollar investment?

d. Answer parts a and b in light of the following additional facts.

(1) Company A's fixed assets consist of $19,000 of common stock in company C. This level of ownership provides voting control.

(2) Company C's total assets of $400,000 include $15,000 of stock in Company D, which gives Company C voting control over company D's $52,000 of total assets.

(3) Company B's fixed assets consist of $55,000 of stock in both company E and company F. In both cases, this level of ownership gives it voting control. Companies E and F have total assets of $298,000 and $395,000, respectively.

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d. Answer parts a and b in light of the following additional facts.

(1) Company A's fixed assets consist of $19,000 of common stock in company C. This level of ownership provides voting control.

(2) Company C's total assets of $400,000 include $15,000 of stock in Company D, which gives Company C voting control over company D's $52,000 of total assets.

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