Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
Question
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Chapter 9, Problem 9.21P
To determine

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 the preferred stockholders claim on SS’s assets on December 31,20X6.

Expert Solution
Check Mark

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 $101202,000
    Dividends in arrears ($200,000 x .1020,000
    Total preferred stockholders claim, December 31, 20X6222,000
To determine

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.

Expert Solution
Check Mark

Answer to Problem 9.21P

Book value of common shares acquired by P is $1,759,800.

Explanation of Solution

    $
    Total stockholders equity of SS December 31, 20X63,155,000
    Claim of preferred stockholders(222,000)
    Book value of common stock2,933,000
    Portion acquired by P $2,933,000 x .601.759,800
To determine

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 goodwill associated with P acquisition of SS common stock.

Expert Solution
Check Mark

Answer to Problem 9.21P

Goodwill associated with acquisition $67,000

Explanation of Solution

    $
    Purchase consideration paid by P1,800,000
    Fair value of non-controlling interest held by SS1,200,000
    Total value3,000,000
    Less: book value of common stock(2,933,000)
    Goodwill67,000
To determine

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.

Expert Solution
Check Mark

Answer to Problem 9.21P

Non-controlling interest for 20X7 109,600.

Explanation of Solution

    $
    SS’s net income280,000
    Less: goodwill impairment(26,000)
    Less:20X7 preferred dividends ($200,000 x .10)(20,000)
    Income attributed to common stockholder234,000
    Non-controlling interest ($234,000 x .40)93,600
    Preferred dividends non-controlling interest ($20,000 x .8016,000
    Total income to non-controlling shareholders109,600
To determine

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.

Expert Solution
Check Mark

Answer to Problem 9.21P

P’s income from investment in subsidiary $156,000.

Explanation of Solution

    $
    SS’s net income280,000
    Less: preferred dividends (200,000 x .10)(20,000)
    Income attributed to common stockholders260,000
    P’s share X .60
    P’s share income to common shareholders156,000
To determine

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.

Expert Solution
Check Mark

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 20X73,155,000
    Net income 20X7280,000
    Less preferred dividends(40,000)
    Common dividends(10,000)
    SS’s stockholder’s equity December 31, 20X73,385,000
    Claim on preferred stockholders(202,000)
    Book value of common stock SS3,183,000
    Goodwill at December 31, 20X7 ($67,000 - $26,000)41,000
    NCI common stock $3,224,000 x .401,289,600
    Non-controlling interest preferred stock$
    SS’s preferred stock January 1 20X7222,000
    Less dividends(20,000)
    SS’s preferred stockholder’s equity202,000
    Non-controlling interest $202,000 x .80161,600
To determine

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.

Expert Solution
Check Mark

Answer to Problem 9.21P

    Debitcredit
    1. Eliminate income from subsidiary
    Income from subsidiary156,000
    Dividends declared − common6,000
    Investment in SS common stock150,000
    2. Eliminate dividends income
    Dividends income preferred 8,000
    Dividends declared preferred stock8,000
    3. Assign income to non-controlling interest
    Income to non-controlling interest109,600
    Dividends declared − common stock4,000
    Dividends declared preferred stock32,000
    Non-controlling interest73,600
    4. Eliminate beginning investment
    Common stock SS500,000
    Additional paid-in capital 800,000
    Preferred stock premium3,000
    Retained earnings January 11,630,000
    Goodwill67,000
    Investment in SS common stock1,800,000
    Non-controlling interest1,200,000
    5. Recognize impairment loss
    Goodwill impairment loss26,000
    Goodwill26,000
    6. Eliminate subsidiary preferred stock
    Preferred stock SS200,000
    Preferred stock premium2,000
    Retained earnings January 1 20,000
    Investment in SS preferred stock42,000
    Additional paid in capital retirement of preferred stock2,400
    Non-controlling interest117,600

Explanation of Solution

  1. Income from subsidiary eliminated by debiting income from subsidiary and credit dividends and investment in common stock.
  2. Dividends income and payable eliminated by setoff entry.
  3. 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.
  4. Beginning investment eliminated.
  5. Premium on preferred stock $3,000 = $5,000 − 2,000

    Retained earnings 1,650,000 − 20,000 = $1,630,000

  6. Impairment loss on goodwill recognized by crediting to goodwill account.
  7. Subsidiary preferred stock eliminated as follows:
  8. 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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