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Unformatted text preview: 35,000 Total $100,000 Company A
$500,000 Current liabilities
Common stock equity
$500,000 Company B
$900,000 Current liabilities
Common stock equity
$900,000 a. What percentage of the total assets controlled by 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, what percentage of the total
assets controlled does the outside company’s equity represent? 750 PART 6 Special Topics in Managerial Finance 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 $20,000 of common stock in company C. This provides voting control.
(2) Company C, which has total assets of $400,000, has voting control of
company D, which has $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 gives it voting control. Companies E
and F have total assets of $300,000 and $400,000, respectively.
LG5 17–12 Voluntary settlements Classify each of the following voluntary settlements as
an extension, a composition, or a combination of the two.
a. Paying all creditors 30 cents on the dollar in exchange for complete discharge
of the debt.
b. Paying all creditors in full in three periodic installments.
c. Paying a group of creditors with claims of $10,000 in full over 2 years and
immediately paying the remaining creditors 75 cents on the dollar. LG5 17–13 Voluntary settlements For a firm with outstanding debt of $125,000, classify
each of the following voluntary settlements as an extension, a composition, or a
combination of the two.
a. Paying a group of creditors in full in four periodic installments and paying
the remaining creditors in full immediately.
b. Paying a group of creditors 90 cents on the dollar immediately and paying the remaining creditors 80 cents on the dollar in two periodic
c. Paying all creditors 15 cents on the dollar.
d. Paying all creditors in full in 180 days. LG5 17–14 Voluntary settlements—Payments Jacobi Supply Company recently ran into
certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and
approximately $75,000 in liquidatable short-term assets. Indicate, for each of
the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments
required of the firm under each plan.
a. Each creditor will be paid 50 cents on the dollar immediately, and the debts
will be considered fully satisfied.
b. Each creditor will be paid 80 cents on the doll...
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