Subsidiary
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
Computation of amount of the preferred stockholders claim on SS’s assets on December 31,20X6.
Answer to Problem 9.21P
Preferred stockholders claim on net assets of SS is $222,000.
Explanation of Solution
| $ | |
| Liquidation value of preferred stock 2,000 x $101 | 202,000 |
| Dividends in arrears ($200,000 x .10 | 20,000 |
| Total preferred stockholders claim, December 31, 20X6 | 222,000 |
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
The computation of December 31 20X6 book value of SS common stock by P.
Answer to Problem 9.21P
Book value of common shares acquired by P is $1,759,800.
Explanation of Solution
| $ | |
| Total | 3,155,000 |
| Claim of preferred stockholders | (222,000) |
| Book value of common stock | 2,933,000 |
| Portion acquired by P $2,933,000 x .60 | 1.759,800 |
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
Computation of amount
Answer to Problem 9.21P
Goodwill associated with acquisition $67,000
Explanation of Solution
| $ | |
| Purchase consideration paid by P | 1,800,000 |
| Fair value of non-controlling interest held by SS | 1,200,000 |
| Total value | 3,000,000 |
| Less: book value of common stock | (2,933,000) |
| Goodwill | 67,000 |
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
Computation of amount income assigned to non-controlling interest in 20X7 consolidated income statement.
Answer to Problem 9.21P
Non-controlling interest for 20X7 109,600.
Explanation of Solution
| $ | |
| SS’s net income | 280,000 |
| Less: goodwill impairment | (26,000) |
| Less:20X7 preferred dividends ($200,000 x .10) | (20,000) |
| Income attributed to common stockholder | 234,000 |
| Non-controlling interest ($234,000 x .40) | 93,600 |
| Preferred dividends non-controlling interest ($20,000 x .80 | 16,000 |
| Total income to non-controlling shareholders | 109,600 |
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
Computation of amount of income from subsidiary recorded by P during 20X7 using fully adjusted equity method.
Answer to Problem 9.21P
P’s income from investment in subsidiary $156,000.
Explanation of Solution
| $ | |
| SS’s net income | 280,000 |
| Less: preferred dividends (200,000 x .10) | (20,000) |
| Income attributed to common stockholders | 260,000 |
| P’s share | X .60 |
| P’s share income to common shareholders | 156,000 |
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
Computation of amount of non-controlling interest in December 31, 20X7.
Answer to Problem 9.21P
Non-controlling interest common stock $1,289,600 and Non-controlling interest preferred stock $161,600.
Explanation of Solution
| Non-controlling interest common stock | $ |
| SS’s stockholder’s equity January 1 20X7 | 3,155,000 |
| Net income 20X7 | 280,000 |
| Less preferred dividends | (40,000) |
| Common dividends | (10,000) |
| SS’s stockholder’s equity December 31, 20X7 | 3,385,000 |
| Claim on preferred stockholders | (202,000) |
| Book value of common stock SS | 3,183,000 |
| Goodwill at December 31, 20X7 ($67,000 - $26,000) | 41,000 |
| NCI common stock $3,224,000 x .40 | 1,289,600 |
| Non-controlling interest preferred stock | $ |
| SS’s preferred stock January 1 20X7 | 222,000 |
| Less dividends | (20,000) |
| SS’s preferred stockholder’s equity | 202,000 |
| Non-controlling interest $202,000 x .80 | 161,600 |
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
Consolidation entries for worksheet of 20X7.
Answer to Problem 9.21P
| Debit | credit | |
| 1. Eliminate income from subsidiary | ||
| Income from subsidiary | 156,000 | |
| Dividends declared − common | 6,000 | |
| Investment in SS common stock | 150,000 | |
| 2. Eliminate dividends income | ||
| Dividends income preferred | 8,000 | |
| Dividends declared preferred stock | 8,000 | |
| 3. Assign income to non-controlling interest | ||
| Income to non-controlling interest | 109,600 | |
| Dividends declared − common stock | 4,000 | |
| Dividends declared preferred stock | 32,000 | |
| Non-controlling interest | 73,600 | |
| 4. Eliminate beginning investment | ||
| Common stock SS | 500,000 | |
| Additional paid-in capital | 800,000 | |
| Preferred stock premium | 3,000 | |
| 1,630,000 | ||
| Goodwill | 67,000 | |
| Investment in SS common stock | 1,800,000 | |
| Non-controlling interest | 1,200,000 | |
| 5. Recognize impairment loss | ||
| Goodwill impairment loss | 26,000 | |
| Goodwill | 26,000 | |
| 6. Eliminate subsidiary preferred stock | ||
| Preferred stock SS | 200,000 | |
| Preferred stock premium | 2,000 | |
| Retained earnings January 1 | 20,000 | |
| Investment in SS preferred stock | 42,000 | |
| Additional paid in capital retirement of preferred stock | 2,400 | |
| Non-controlling interest | 117,600 |
Explanation of Solution
- Income from subsidiary eliminated by debiting income from subsidiary and credit dividends and investment in common stock.
- Dividends income and payable eliminated by setoff entry.
- Income to non-controlling interest, common stock dividends $10,000 x. 40 = 4,000 and preferred dividends of $40,000 x .80 = 32,000 is credited and eliminated.
- Beginning investment eliminated.
- Impairment loss on goodwill recognized by crediting to goodwill account.
- Subsidiary preferred stock eliminated as follows:
Premium on preferred stock $3,000 = $5,000 − 2,000
Retained earnings 1,650,000 − 20,000 = $1,630,000
Premium on preferred stock $2,000 = $5,000 - $3,000
Retained earnings $200,000 x .10 = 20,000
Retirement of preferred stock $2,400 = ($222,000 x.20) - $42,000
Non-controlling interest $222,000 x .80 = 177,600
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Chapter 9 Solutions
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