Problem 2-1 Consolidation

Condensed balance sheets for Phillips Company and Solina Company on January 1, 2003, are as follows:

	Phillips	Solina
Current assets	$180,000	$ 85,000
Plant and equipment (net)	450,000	140,000
Total assets	$ 630,000	$ 225,000
Total liabilities	$ 95,000	$ 35,000
Common stock, $10 par value	350,000	160,000
Other contributed capital	125,000	53,000
Retained earnings (deficit)	60,000	(23,000)
Total equities	$ 630,000	$ 225,000

On January 1, 2003, the stockholders of Phillips and Solina agreed to a consolidation whereby a new corporation, McGregor Company, would be formed to consolidate Phillips and Solina. McGregor Company issued 30,000 shares of its $20 par value common stock for the net assets of Phillips and Solina.

On the date of consolidation, the fair values of Phillip's and Solina's current assets and liabilities were equal to their book values. The fair value of plant and equipment for each company was: Phillips, $530,000; Solina, $150,000.

The investment banking house of Bradly and Bradly estimated that the fair value of McGregor Company's common stock was $35 per share. Phillips will incur $20,000 of direct acquisition costs and $6,000 in stock issue costs.