-
Assets and liabilities are recorded at book value. (Note: Net assets
are not affected by the number of shares issued to effect a pooling.)
-
Capital stock is the capital stock of the issuing company (or parent).
-
Retained earnings balances are combined.
-
Maximum pooling retained earnings = combined retained earnings.
-
Maximum retained earnings is reduced by any excess of capital stock of
the issuing company immediately after the pooling over total paid-in capital
of the combining companies at the time of the pooling.
-
If maximum retained earnings is reduced, the pooled entity has no additional
paid-in capital.
-
The additional paid-in capital of the pooled entity is equal to any excess
of total paid-in capital of the combining entities at eh time of
pooling over the capital stock of the issuing company immediately after
the pooling.
Balances on December 31, 1999
|
Corporation A
|
Corporation B
|
| Cash |
3,000
|
1,000
|
| Plant Assets |
29,000
|
11,000
|
| Accounts Payable |
8,800
|
5,000
|
| Common Stock ($10 par) |
15,000
|
3,000
|
| Other Paid-in Capital |
3,000
|
1,200
|
| Retained Earnings |
5,200
|
2,800
|
|
|
|
Example A: On January 1, 2000, Corp. A issues 400 shares of its capital
stock for all of Corp. B capital stock and Corp. B is dissolved, the entry
to record the pooling is:
| Cash |
1,000 |
|
| Plant Assets |
11,000 |
|
| Accounts payable |
|
5,000 |
| Capital Stock |
|
4,000 |
| Other paid in capital |
|
200* |
| Retained earnings |
|
2,800 |
* With 200 recorded as other paid-in capital, the total credit to paid
in capital is 4,200 which is the same total as Corp. B paid in capital
on December 31, 1999.
Example B: On January 1, 2000, Corp. A issues 500 shares of its capital
stock for all of Corp. B capital stock and Corp. B is dissolved, the entry
to record the pooling is:
| Cash |
1,000 |
|
| Plant Assets |
11,000 |
|
| Other paid-in capital** |
800 |
|
| Accounts Payable |
|
5,000 |
| Capital Stock |
|
5,000 |
| Retained earnings |
|
2,800 |
** Other paid in capital is reduced by excess of the credit to capital
stock over the total paid in capital of Corp. B.
Example C: On January 1, 2000, Corp. A issues 800 shares of its capital
stock for all of Corp. B capital stock and Corp. B is dissolved, the entry
to record the pooling is:
| Cash |
1,000 |
|
| Plant Assets |
11,000 |
|
| Other paid-in capital |
3,000 |
|
| Accounts Payable |
|
5,000 |
| Capital Stock |
|
8,000 |
| Retained Earnings |
|
2,000*** |
*** The credit to R/E is reduced by the excess ($800) of capital
stock of the issuing company immediately after
the pooling over total paid-in capital of the combining companies
at
the time of the pooling. Immediately
after the pooling, capital stock in this
example after the pooling is the $15,000 original plus the $8,000 par value
of new shares for a total of $23,000. At
the time of pooling, total paid in capital
of the two companies was only $22,200. Company A was $18,000 (15,000+3,000)
and Company B was $4,200 (3,000+1,200). So, if we are putting $800
too much in paid in capital, it must come out of Retained Earnings in order
to stay in balance. That is, we use the Company B paid in capital
and if that isn't sufficient, we use additional paid in capital of company
A and finally we debit Retained Earnings if necessary.