Gamble Company convinced Conservative Corporation that the two companies should establish
Gamble Company convinced Conservative Corporation that the two companies should establish Simpletown Corporation to build a new gambling casino in Simpletown Corner. Although chances for the casino’s success were relatively low, a local bank loaned $140 million to the new corporation, which built the casino at a cost of $130 million. Conservative purchased 100 percent of the initial capital stock offering for $5.6 million, and Gamble agreed to supply 100 percent of the management, which would include directing Simpletown's day-to-day activities. Gamble also agreed to guarantee the bank loan. Additionally, Gamble guaranteed a 20 percent return to Conservative on its investment for the first 10 years. Gamble will receive all profits in excess of the 20 percent return to Conservative. Immediately after the casino’s construction, Gamble reported the following amounts:
| Cash | $ 3,000,000 |
|---|---|
| Buildings and Equipment | 240,600,000 |
| 10,100,000 | |
| Accounts Payable | 5,000,000 |
| Bonds Payable | 20,300,000 |
| Common Stock | 103,000,000 |
| 105,200,000 |
The only disclosure that Gamble currently provides in its financial reports about its relationships to Conservative and Simpletown is a brief footnote indicating that a
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