Concept explainers
Introduction: Preferred stockholders normally have a preferential right over common shareholders when dividends are distributed and the distribution of assets in liquidation. The right to vote usually is suspended from preferred shareholders. During consolidation, before eliminating the intercompany common stock ownership, it is important to determine the amount of subsidiary
The things K’s controller need to know about preferred stock to determine the proper allocation of consolidated net income to the controlling and non-controlling interests.
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Advanced Financial Accounting
- Choose the correct. The parent company acquires all of a subsidiary’s common stock but only 70 percent of its preferred shares. This preferred stock pays a 7 percent annual cumulative dividend. No dividends are in arrears at the current time. How is the noncontrolling interest’s share of the subsidiary’s income computed?a. As 30 percent of the subsidiary’s preferred dividend.b. No allocation is made because the dividends have been paid.c. As 30 percent of the subsidiary’s income after all dividends have been subtracted.d. Income is assigned to the preferred stock based on total par value and 30 percent of that amount is allocated to the noncontrolling interest.arrow_forwardAssume that Trump acquired Clinton on January 2, 20X1. Trump issued 60,000 new shares of its common stock valued at $4.00 per share for all of the outstanding stock of Clinton. Immediately afterwards, what is consolidated Common Stock (first think about the entry the Parent would make to record the Investment, then what would happen on the consolidated worksheet with Entry S)?Assume that Trump acquired Clinton on January 2, 20X1. Trump issued 60,000 new shares of its common stock valued at $4.00 per share for all of the outstanding stock of Clinton. Immediately afterwards, what is consolidated Common Stock (first think about the entry the Parent would make to record the Investment, then what would happen on the consolidated worksheet with Entry S)arrow_forwardPrice Company issued 8,740 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company will be merged into Price Company. On the date of the combination, Price Company common stock had a fair value of $30 per share. Balance sheets for Price Company and Sims Company immediately prior to the combination were: Price Sims Current assets $460,540 $61,810 Plant and equipment (net) 529,190 140,940 Total $989,730 $202,750 Liabilities $274,100 $53,300 Common stock, $20 par value 558,200 88,000 Other contributed capital 72,870 20,750 Retained earnings 84,560 40,700 Total $989,730 $202,750 (a) If the business combination is treated as a purchase and Sims Company’s net assets have a fair value of $209,574, Price Company’s balance sheet immediately after the combination will include goodwill of…arrow_forward
- Parent owned 5,000 shares (80%) of the outstanding 20%, $50 par, peferred stock and 70% of the outstanding common stock of Sub. Assuming there are no excess amortization or intra-entity transactions, and Sub reports net income of $330,000, what is the noncontrolling interest in the subsidiary's income? Would the following be correct? 5,000 * $50 = $250,000 $330,000 - $250,000 = $80,000 $80,000 * 70% = $56,000 5,000 * 20% = $1,000 $56,000 * 30% = $16,800 Noncontrolling interest in subsidiary's income = $17,800arrow_forwardParent Corporation acquired 80% of the outstanding shares of Subsidiary Company on June 1, 2021 for P3,517,500. Subsidiary Company’s stockholder’s equity components at the end of this year are as follows: Ordinary shares, P100 par, P1,500,000, Share premium P675,000 and Retained Earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of Subsidiary Company were fairly valued, except for inventories, which are overstated by P66,000, and equipment, which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of Parent Corporation on January 1, 2021 is composed of Ordinary shares P4,500,000, Share premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year end. Net Income for the first year of parent is P450,000 and the net income of Subsidiary Company from the date of acquisition is P255,000. Dividends declared at the end of the year…arrow_forward2. ABC Corporation holds ordinary shares of XYZ Inc. acquired as follows: Date of Acquisition Shares Total Cost September 19, Year 2 750 60,000 July 16, Year 1 1,250 110,000 The shares above were classified as equity investments at fair value through other comprehensive income. Fair values on December 31, Year 1 and Year 2 were P 85 and P 90 respectively. In Year 3, ABC Corp. Received 2,000 rights to purchase XYZ Inc. ordinary shares at P 80 per share. Five rights are required to purchase one share. ABC Corp. used rights to purchase additional 300 shares of XYZ Inc when each shares sells at P 100. Subsequently ABC sold the remaining rights at 4.50 each. At December 31, Year 3. XYZ Inc ordinary shares sell at P 98. Required:a) Determine the amount of the equity account Unrealized Gains or Losses on Equity Investments at Fair Value through Other Comprehensive Income at the end of the Years 1 and 2.b) Determine the amount taken to other comprehensive income as a result of the…arrow_forward
- Parent Company owns 80,000 shares of Subsidiary Company’s 100,000 outstanding ordinary shares, acquired at bookvalue. The December 31, 20x8, consolidated balance sheet presented by Parent and Subsidiary included net assets ofSubsidiary in the amount of P600,000. On January 1, 20x9, Parent sells 10,000 shares (10%) of its Subsidiary stock tounrelated parties for P70,000.Determine the gain or loss on disposal of shares to be recognized in the PROFIT OR LOSS STATEMENT.arrow_forwardChoose the correct. Mattoon, Inc., owns 80 percent of Effingham Company. For the current year, this combined entity reported consolidated net income of $500,000. Of this amount $465,000 was attributable to Mattoon’s controlling interest while the remaining $35,000 was attributable to the noncontrolling interest. Mattoon has 100,000 shares of common stock outstanding and Effingham has 25,000 shares outstanding. Neither company has issued preferred shares or has any convertible securities outstanding. On the face of the consolidated income statement, how much should be reported as Mattoon’s earnings per share?a. $5.00b. $4.65c. $4.00d. $3.88arrow_forwardChoose the correct. On January 1, Puckett Company paid $1.6 million for 50,000 shares of Harrison’s voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison declared a $2 per share dividend during the year and reported net income of $560,000. What is the balance in the Investment in Harrison account found in Puckett’s financial records as of December 31?a. $1,724,000b. $1,784,000c. $1,844,000d. $1,884,000arrow_forward
- PARENT Corporation acquired 80% of the outstanding shares of SUBSIDIARY Company on June 1, 2022 for P3,517,500. SUBSIDIARY Company’s stockholder’s equity components at the end of this year are as follows; Ordinary shares, P100 par, P1,500,000. Share premium P675,000 and Retained Earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of SUBSIDIARY were fairly valued, except for inventories, which are overstated by P66,000 and equipment, which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of PARENT on January 1, 2022 is composed of Ordinary shares P4,500,000, Share premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year-end. Net Income for the first year of parent is P450,000 and the net income of subsidiary from the date of acquisition is P255,000. Dividends declared at the end of the year amounted to P120,000 and P90,000 for…arrow_forwardA, B, C, and D are companies to be combined. Just prior to the combination, their individual stockholder’s equity consists of the following balances:Company A is the surviving entity. It issued 20,000, P69 par value ordinary shares, with FMV of P91; dispersed to the stockholders of the acquired companies. 1. How much goodwill is to be recognized assuming that the net assets are fairly valued?a. P 845,000.00b. P 695,000.00c. P 485,000.00d. P 440,000.00 2. Following the problem above, how much is the Share Premium of the combined entity after the combination?a. P 845,000.00b. P 695,000.00c. P 485,000.00arrow_forwardMan merged with San Corporation in a business combination in which San issued 30,000 shares of its $5 par (current fair value $20 a share) common stock to stockholders of Man in exchange for all their outstanding common stock. The journal entry for the merger includes: a. Debit to investment in common stock of Man company $ 600,000. b. Debit to investment in common stock of Man company $ 450,000. c. Debit to investment in common stock of Man company $ 150,000. d. Debit to investment in common stock of Man company $ 300,000.arrow_forward