Preferred Dividends and Call Premium
On January 1, 20X2, Fischer Corporation purchased 90 percent of the common shares and 60 percent of the preferred shares of Culbertson Company at underlying book value. At that date, the fair value of the noncontrolling interest in Culbertson’s common stock was equal to 10 percent of the book value of its common stock. Culbertson’s balance sheet at the time of purchase contained the following balances:
Total Assets | $860,000 | Total Liabilities | $ 80,000 |
|
| Preferred Stock | 100,000 |
|
| Common Stock | 300,000 |
|
| Retained Earnings | 380,000 |
Total Assets | $860,000 | Total Liabilities and Equities | $860,000 |
The preferred shares are cumulative with regard to dividends. The shares have a 12 percent annual dividend rate and are five years in arrears on January 1, 20X2. All of the $10 par value preferred shares are callable at $12 per share after December 31, 20X0. During 20X2, Culbertson reported net income of $70,000 and paid no dividends.
Required
a. Compute Culbertson’s contribution to consolidated net income for 20X2.
b. Compute the amount of income to be assigned to the noncontrolling interest in the 20X2 consolidated income statement.
c. Compute the portion of Culbertson’s retained earnings assignable to its preferred shareholders on January 1, 20X2.
d. Compute the book value of the common stock on January 1, 20X2.
e. Compute the amount to be reported as the noncontrolling interest in the consolidated balance sheet on January 1, 20X2.
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