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Exam 9: Consolidation Ownership Issues

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Question 1

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Protective Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1,20X6.At that date,the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock.Safety's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1,20X6.All of the $10 par value preferred shares are callable at $12 per share.During 20X6,Safety reported net income of $80,000 and paid no dividends. -Based on the preceding information,what is the portion of Safety's retained earnings assignable to its preferred shareholders on January 1,20X6?

A) $52,000
B) $44,000
C) $36,000
D) $28,000

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Question 2

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X Corporation owns 80 percent of Y Corporation's common stock and 40 percent of Z Corporation's common stock.Additionally,Y Corporation owns 35 percent of Z Corporation's common stock.The acquisitions were made at book values.The following information is available for 20X8: -Based on the information provided,what amount of income will be assigned to the noncontrolling interest in the 20X8 consolidated income statement?

A) $23,750
B) $25,000
C) $18,000
D) $33,750

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Question 3

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Perfect Corporation acquired 70 percent of Storm Company's shares on December 31,20X8,for $140,000.At that date,the fair value of the noncontrolling interest was $60,000.On January 1,20X0,Perfect acquired an additional 10 percent of Storm's common stock for $32,500.Summarized balance sheets for Storm on the dates indicated are as follows: Storm paid dividends of $10,000 in each of the three years.Perfect uses the fully adjusted equity method in accounting for its investment in Storm and amortizes all differentials over 5 years against the related investment income.All differentials are assigned to patents in the consolidated financial statements. -Based on the preceding information,Storm Company's net income for 20X9 and 20X0 are:

Pratt Corporation owns 75 percent of Swan Corporation's outstanding common stock.Swan,in turn,owns 15 percent of Pratt's outstanding common stock.What percent of the dividends paid by Pratt is reported as dividends declared in the consolidated retained earnings statement?

Pratt Corporation acquired 90 percent of Splatt Corporation's common shares on January 1,20X6,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 10 percent of the book value of Splatt.Splatt Corporation prepared the following balance sheet as of January 1,20X9: The company is considering the following alternatives: 1.A 3-for-1 stock split 2.A stock dividend of 7,000 shares on its $5 par value common stock 3.A stock dividend of 2,000 shares on its $5 par value common stock The current market price per share of Splatt stock on January 1,20X9,is $15. Required: Give the investment elimination entry required to prepare a consolidated balance sheet at the close of business on January 1,20X9,for each of the alternative transactions under consideration by Splatt Corporation.

Protective Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1,20X6.At that date,the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock.Safety's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1,20X6.All of the $10 par value preferred shares are callable at $12 per share.During 20X6,Safety reported net income of $80,000 and paid no dividends. -Based on the preceding information,what will be the amount of income to be assigned to the noncontrolling interest in the 20X6 consolidated income statement?

Protective Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1,20X6.At that date,the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock.Safety's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1,20X6.All of the $10 par value preferred shares are callable at $12 per share.During 20X6,Safety reported net income of $80,000 and paid no dividends. -Based on the preceding information,what is Safety's contribution to consolidated net income for 20X6?

Plum Corporation acquired 80 percent of Saucy Corporation's common shares on January 1,20X7,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Saucy Corporation.Saucy prepared the following balance sheet as of December 31,20X8: On January 1,20X9,Saucy declares a stock dividend of 9,000 shares on its $5 par value common stock.The current market price per share of Saucy stock on January 1,20X9,is $20. -Based on the preceding information,the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for:

On January 1,20X9,A Company acquired 85 percent of B Company's voting common stock for $425,000.At that date,the fair value of the noncontrolling interest of B Company was $75,000.Immediately after A Company acquired its ownership,B Company acquired 75 percent of C Company's stock for $150,000.The fair value of the noncontrolling interest of C Company was $50,000 at that date.At January 1,20X9,the stockholders' equity sections of the balance sheets of the companies were as follows: During 20X9,A Company reported operating income of $175,000 and paid dividends of $50,000.B Company reported operating income of $125,000 and paid dividends of $40,000.C Company reported net income of $100,000 and paid dividends of $25,000. -Based on the information provided,what amount of income will be assigned to the controlling interest in the consolidated income statement for 20X9?

On January 1,20X7,Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock.There was no differential related to this transaction.The noncontrolling interest had a fair value equal to 20 percent of book value.The book value of Siena on December 31,20X7 was as follows: On January 1,20X8,Pisa purchased an additional 12,500 shares directly from Siena for $25 per share. -Based on the preceding information,the ending balance in Additional Paid-In Capital would be:

Pail Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of Shovel Corporation at underlying book value on January 1,20X9.At that date,the fair value of the noncontrolling interest in Shovel's common stock was equal to 20 percent of the book value of its common stock.Shovel's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1,20X9.All of the $5 par value preferred shares are callable at $6 per share.During 20X9,Shovel reported net income of $100,000 and paid no dividends. -Based on the preceding information,what is Shovel's contribution to consolidated net income for 20X9?

Protective Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1,20X6.At that date,the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock.Safety's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1,20X6.All of the $10 par value preferred shares are callable at $12 per share.During 20X6,Safety reported net income of $80,000 and paid no dividends. -Based on the preceding information,the amount assigned to the noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1,20X6 is

On January 1,20X7,Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock.There was no differential related to this transaction.The noncontrolling interest had a fair value equal to 20 percent of book value.The book value of Siena on December 31,20X7 was as follows: On January 1,20X8,Pisa purchased an additional 12,500 shares directly from Siena for $25 per share. -Based on the preceding information,the elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:

Pooley Corporation owns 75 percent of the common shares and 60 percent of the preferred shares of Stanley Company,all acquired at underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest in Stanley's common stock was equal to 25 percent of the book value of its common stock.The balance sheets of Pooley and Stanley immediately after the acquisition contained these balances: Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 20X8,Stanley reports net income of $40,000 and pays no dividends.Pooley reports income from its separate operations of $75,000 and pays dividends of $30,000 during 20X8. -Based on the preceding information,what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement?

On January 1,20X9,Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company,for $400,000 and $60,000,respectively.At the time of acquisition,the fair value of the common shares of Stanford Company held by the noncontrolling interest was $100,000.Stanford Company's balance sheet contained the following balances: Preferred Stock ($5 par value) $ 100,000 Common Stock ($10 par value) 200,000 Retained Earnings 300,000 Total Stockholders' Equity $ 600,000 For the year ended December 31,20X9,Stanford Company reported net income of $100,000 and paid dividends of $40,000.The preferred stock is cumulative and pays an annual dividend of 10 percent. -Based on the preceding information,what will be the equity method income reported by Princeton Company from its investment in Stanford Company during 20X9?

X Corporation owns 80 percent of Y Corporation's common stock and 40 percent of Z Corporation's common stock.Additionally,Y Corporation owns 35 percent of Z Corporation's common stock.The acquisitions were made at book values.The following information is available for 20X8: -Based on the information provided,what amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement?

Protective Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1,20X6.At that date,the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock.Safety's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1,20X6.All of the $10 par value preferred shares are callable at $12 per share.During 20X6,Safety reported net income of $80,000 and paid no dividends. -Based on the information provided,what is the book value of the common stock on January 1,20X6?

Plate Corporation acquired 75 percent of the stock of Silver Company on January 1,20X7,for $225,000.At that date,the fair value of the noncontrolling interest was $75,000.Silver's balance sheet contained the following amounts at the time of the combination: During each of the next three years,Silver reported net income of $30,000 and paid dividends of $10,000.On January 1,20X9,Plate sold 1,500 shares of Silver's $10 par value shares for $60,000 in cash.Plate used the fully adjusted equity method in accounting for its ownership of Silver Company. -Based on the preceding information,what was the balance in the investment account reported by Plate on January 1,20X9,before its sale of shares?

On January 1,20X7,Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock.There was no differential related to this transaction.The noncontrolling interest had a fair value equal to 20 percent of book value.The book value of Siena on December 31,20X7 was as follows: On January 1,20X8,Pisa purchased an additional 12,500 shares directly from Siena for $25 per share. -Based on the preceding information,by what amount did the Investment in Siena account change?

Plate Corporation acquired 75 percent of the stock of Silver Company on January 1,20X7,for $225,000.At that date,the fair value of the noncontrolling interest was $75,000.Silver's balance sheet contained the following amounts at the time of the combination: During each of the next three years,Silver reported net income of $30,000 and paid dividends of $10,000.On January 1,20X9,Plate sold 1,500 shares of Silver's $10 par value shares for $60,000 in cash.Plate used the fully adjusted equity method in accounting for its ownership of Silver Company. -Based on the preceding information,in the journal entry recorded by Plate for sale of shares,Additional Paid-in Capital will be credited for: