Micron 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 1,2008.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 Micron and Stanley immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 2008,Stanley reports net income of $40,000 and pays no dividends.Micron reports income from its separate operations of $75,000 and pays dividends of $30,000 during 2008.

-Based on the preceding information,what is the total stockholders' equity reported in the consolidated balance sheet as of January 1,2008?

Question

Micron 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 1,2008.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 Micron and Stanley immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 2008,Stanley reports net income of $40,000 and pays no dividends.Micron reports income from its separate operations of $75,000 and pays dividends of $30,000 during 2008.
 
-Based on the preceding information,what is the total stockholders' equity reported in the consolidated balance sheet as of January 1,2008?

Quizplus · Accepted Answer

To determine the total stockholders' equity of consolidated balance sheet, we need to add the equity of both Micron and Stanley together.

Micron's stockholder equity: 
- Common stock = 100,000 
- Retained earnings = 45,000 (75,000 - 30,000) 
Total stockholder equity = 145,000

Stanley's stockholder equity: 
- Preferred stock = 50,000 (500,000 x 0.12) 
- Common stock = 100,000 
- Retained earnings = 10,000 ($40,000 net income - $50,000 preferred dividends) 
Total stockholder equity = 160,000

We can calculate the noncontrolling interest (NCI) for the common shares by taking the fair value of the NCI: 
Fair value of NCI = 0.25 x 100,000 = 25,000

To calculate the NCI for the preferred shares, we need to first calculate the preferred dividends not paid by Stanley. Since Stanley's preferred stock is cumulative, it will need to pay the dividends eventually. 
Cumulative preferred dividends not paid = 50,000 x 0.12 = 6,000

NCI for preferred shares = 0.4 x 6,000 = 2,400 (since Micron owns 60% of the preferred shares, NCI for preferred shares would be 40%)

Total equity attributable to the parent company: 
= Micron's equity + NCI for common shares + NCI for preferred shares 
= 145,000 + 25,000 + 2,400 
= 172,400

Total stockholders' equity reported in the consolidated balance sheet as of January 1, 2008: 
= Total equity attributable to the parent company + equity attributable to noncontrolling interest 
= 172,400 + (0.25 x (100,000 + 50,000)) 
= 172,400 + 37,500 
= $209,900

However, the question is asking for the total stockholders' equity immediately after the acquisition, which would only include Micron's stockholder equity and the portion of Stanley's equity owned by Micron at the time. 
Micron's stockholder equity on January 1, 2008: 
= Common stock + Retained earnings 
= 100,000 + 45,000 
= $145,000

The portion of Stanley's equity owned by Micron on January 1, 2008: 
= 75% x (100,000 + 50,000 + 0 - 6,000) 
= 168,750

Total stockholders' equity reported in the consolidated balance sheet as of January 1, 2008: 
= Micron's stockholder equity on January 1, 2008 + portion of Stanley's equity owned by Micron on the same date 
= 145,000 + 168,750 
= $313,750

However, we need to adjust for the fair value of NCI for common shares: 
Adjusted portion of Stanley's equity owned by Micron on January 1, 2008: 
= 168,750 - 25% x 100,000 
= 143,750

Total stockholders' equity reported in the consolidated balance sheet as of January 1, 2008: 
= Micron's stockholder equity on January 1, 2008 + adjusted portion of Stanley's equity owned by Micron on the same date 
= 145,000 + 143,750 
= $288,750

Therefore, the correct answer is B) $530,000, which is the sum of total assets of Micron and Stanley at the time of acquisition, as mentioned in the question.

Micron Corporation Owns 75 Percent of the Common Shares and 60