E 2-9 Calculate income and investment balance when investee capital structure includes preferred stockSon Company had net income of $400,000 and paid dividends of $200,000 during 2017. Son’s stockholders’ equity on December 31, 2016, and December 31, 2017, is summarized as follows (in thousands): December 31, 2016December 31, 201710% cumulative preferred stock, $100 par $ 300 $ 300Common stock, $1 par 1,000 1,000Additional paid-in capital 2,200 2,200Retained earnings 500 700 Total stockholders’ equity$4,000$4,200On January 2, 2017, Pop Corporation purchased 300,000 common shares of Son at $4 per share. Pop also paid $50,000 in cash for direct costs of acquiring the investment.RequiredDetermine (1) Pop’s income from Son for 2017 and (2) the balance of the investment in the Son account at December 31, 2017. Assume the fair values of Son’s assets and liabilities equal book values.

Equity is the sum supported by the proprietors or investors of an organization for carrying the…

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter11: Stockholders' Equity

Section: Chapter Questions

Problem 11.16E

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E 2-9 Calculate income and investment balance when investee capital structure includes preferred stock

Son Company had net income of $400,000 and paid dividends of $200,000 during 2017. Son’s stockholders’ equity on December 31, 2016, and December 31, 2017, is summarized as follows (in thousands):

	December 31, 2016	December 31, 2017
10% cumulative preferred stock, $100 par	$ 300	$ 300
Common stock, $1 par	1,000	1,000
Additional paid-in capital	2,200	2,200
Retained earnings	500	700
Total stockholders’ equity	$4,000	$4,200

On January 2, 2017, Pop Corporation purchased 300,000 common shares of Son at $4 per share. Pop also paid $50,000 in cash for direct costs of acquiring the investment.

Required

Determine (1) Pop’s income from Son for 2017 and (2) the balance of the investment in the Son account at December 31, 2017. Assume the fair values of Son’s assets and liabilities equal book values.

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