Answered: Scully Corporation holds enough stock…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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?

2.93%

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?

0.43%

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

"By gaining voting control in a company for a small investment, then using that company to gain voting control in another, a holding company provides control for a relatively small investment." Is the above statement true or false?

True

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

(I need help with this part)

(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.

d. With additional facts, the percentage of the total assets controlled by Scully Corporation as its common stock equity represents is

enter your response here%. (Round to two decimal places.)

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