Wallace Computer Company is a small, closely held corporation. Eighty percent of
ID: 2423079 • Letter: W
Question
Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The balance sheet of the company at June 30, 2014, was substantially as shown below.
Assets
Cash $19,500 Current Liab. $44,500
Other $400,500 Common stock $222,500
$420,000 Retained earnings $153,000
$420,000
Additional authorized common stock of $267,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of $89,000 to himself at par for cash. At the next stockholders’ meeting, Baker objected and claimed that her interests had been injured.
(c)
If Derek Wallace offered Baker a personal cash settlement and they agreed to employ you as an impartial arbitrator to determine the amount, what settlement would you propose? Present your calculations with sufficient explanation to satisfy both parties.
Explanation / Answer
Answer :
Share holder fund = 222500+153000 375500 Suppose Share par value is 10$ No. of existing Share = 222500/10 22250 Book Value per share = Share holder fund/ No. of shares '=375500/22250 16.8764044944 Or $ 16.88 Baker is entitled to get shares in new issue at par value Share issued of amount = 89000/10 No. of Share issued = 8900 Baker shares should be in new issue '= 8900*10/110 809 shares New book value per share '=375500+89000/22250+8900 14.911717496 Or $ 14.91 Cash Settlement amount (New book value per share – par value)*no. Of shares entitled '=(14.91-10)*809 '=4.91*809 Cash Settlement Amount 3972.19Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.