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.

Question

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Answer 1

Question

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

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

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

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, 20X6	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

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

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

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

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

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

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

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

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

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

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
Retained earnings January 1	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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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

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

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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Answer 2

Question

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

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

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

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, 20X6	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

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

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

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

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

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

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

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

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

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

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
Retained earnings January 1	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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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

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

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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Answer 3

Question

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

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

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

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, 20X6	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

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

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

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

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

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

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

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

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

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

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
Retained earnings January 1	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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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

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

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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Answer 4

Question

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

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

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

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, 20X6	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

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

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

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

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

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

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

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

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

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

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
Retained earnings January 1	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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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

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

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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Answer 5

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

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

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

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, 20X6	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

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

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

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

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

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

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

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

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

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

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
Retained earnings January 1	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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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

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

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

Answer 6

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

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

Answer 7

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.

Answer 8

Expert Solution

Answer to Problem 9.21P

Preferred stockholders claim on net assets of SS is $222,000.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

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

Answer 13

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

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, 20X6	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

Answer 14

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.

Answer 15

Expert Solution

Answer to Problem 9.21P

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

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

	$
Total stockholders equity of SS December 31, 20X6	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

Answer 20

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

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

Answer 21

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.

Answer 22

Expert Solution

Answer to Problem 9.21P

Goodwill associated with acquisition $67,000

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

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

Answer 27

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

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

Answer 28

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.

Answer 29

Expert Solution

Answer to Problem 9.21P

Non-controlling interest for 20X7 109,600.

Answer 30

Expert Solution

Answer 31

Expert Solution

Answer 32

Expert Solution

Answer 33

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

Answer 34

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

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

Answer 35

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.

Answer 36

Expert Solution

Answer to Problem 9.21P

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

Answer 37

Expert Solution

Answer 38

Expert Solution

Answer 39

Expert Solution

Answer 40

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

Answer 41

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

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

Answer 42

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.

Answer 43

Expert Solution

Answer to Problem 9.21P

Non-controlling interest common stock $1,289,600 and Non-controlling interest preferred stock $161,600.

Answer 44

Expert Solution

Answer 45

Expert Solution

Answer 46

Expert Solution

Answer 47

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

Answer 48

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

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
Retained earnings January 1	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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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

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

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

Answer 49

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.

Answer 50

Expert Solution

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
Retained earnings January 1	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

Answer 51

Expert Solution

Answer 52

Expert Solution

Answer 53

Expert Solution

Answer 54

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.

Premium on preferred stock $3,000 = $5,000 − 2,000

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