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

Holding company
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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.

Scully Corporation

Common stock holdings

Long-term debt 40,000.00
Company A 40,000.00 Preferred Stock 25,000.00
Company B 60,000.00 Common Stock equity 35,000.00
Total 100,000.00 Total 100,000.00
Company A

Current Assets 100,000.00 Current Liabilities 100,000.00
Fixed Asssets 400,000.00 long-term debt 200,000.00
Total 500,000.00 Common stock equity 200,000.00
Total 500,000.00
Company B

Current Assets 180,000.00 Current Liabilities 100,000.00
Fixed Assets 720,000.00 long-term debt 500,000.00
Total 900,000.00 Common stock equity 300,000.00
Total 900,000.00
a.Whatpercentage of the total assets controlledby Scully Corporation does its common stock equity represent?

b.If another company owns 15% of the common stock of Scully Corporation and, by virtue of this fact, has voting control, whatpercentage of the total assets controlleddoes 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 partsaandbin light of the following additional facts.

(1) Company A’s fixed assets consist of $20,000 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 $50,000 of total assets.

(3) Company B’s fixed assets consist of $60,000 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 $300,000 and $400,000, respectively.

P18–12 Holding company 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.

Scully Corporation
Common stock holdings Long-term debt 40,000.00
Company A 40,000.00 Preferred Stock 25,000.00
Company B 60,000.00 Common Stock equity 35,000.00
Total 100,000.00 Total 100,000.00
Company A
Current Assets 100,000.00 Current Liabilities 100,000.00
Fixed Asssets 400,000.00 long-term debt 200,000.00
Total 500,000.00 Common stock equity 200,000.00
Total 500,000.00
Company B
Current Assets 180,000.00 Current Liabilities 100,000.00
Fixed Assets 720,000.00 long-term debt 500,000.00
Total 900,000.00 Common stock equity 300,000.00
Total 900,000.00

What percentage of the total assets controlled by Scully Corporation does itscommon stock equity represent?
If another company owns 15% of the common stock of Scully Corporation and,by virtue of this fact, has voting control, what percentage of the total assets controlleddoes the outside company’s equity represent?
How does a holding company effectively provide a great deal of control for asmall dollar investment?
Answer parts a andb in light of the following additional facts.
(1) Company A’s fixed assets consist of $20,000 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 $50,000 of totalassets.

(3) Company B’s fixed assets consist of $60,000 of stock in both Company E andCompany F. In both cases, this level of ownership gives it voting control.Companies E and F have total assets of $300,000 and $400,000, respectively.


 

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