Shelton Corporation and Davis Corporation want to join forces as one corporation

Question

Shelton Corporation and Davis Corporation want to join forces as one corporation because their businesses are complementary. They would like the resulting corporation to have a new name because both of them have been involved in high profile lawsuits due to environmental issues. Shelton is a manufacturer with a basis in its assets of $2 million (value of $2.9 million) and liabilities of $500,000. Davis is a distributor of a variety of products including those of Shelton's. Its basis in its assets is $1.2 million (value of $2 million) and has liabilities of $400,000. Given these facts, what type of reorganization would you suggest for Shelton and Davis?

Explanation / Answer

Direct materials costs: Beginning inventory, Jan. 1, 2007 $ 15 Purchases of direct materials 325 Cost of direct materials available for use 340 Ending inventory, Dec. 31, 2007 20 Direct materials used $320 Direct manufacturing labor costs 100 Indirect manufacturing costs: Indirect manufacturing labor 60 Plant supplies used 10 Plant utilities 30 Depreciation––plant, building, and equipment 80 Plant supervisory salaries 5 Miscellaneous plant overhead 35 220 Manufacturing costs incurred during 2007 640 Add beginning work-in-process inventory, Jan. 1, 2007 10 Total manufacturing costs to account for 650 Deduct ending work-in-process, Dec. 31, 2007 5 Cost of goods manufactured $645

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