The following data applies to Questions 1 - 3:
On January 1, 20X9, Company A acquired 80 percent of the common stock and 60 percent of the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Company B held by the noncontrolling interest was $100,000. Company B's balance sheet contained the following balances:
For the year ended December 31, 20X9, Company B 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,the consolidating entry to prepare the consolidated financial statements for Company A as of December 31,20X9 will include a credit to Investment in Company B-Common Stock for:

Question

The following data applies to Questions 1 - 3:
On January 1, 20X9, Company A acquired 80 percent of the common stock and 60 percent of the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Company B held by the noncontrolling interest was $100,000. Company B's balance sheet contained the following balances:
  For the year ended December 31, 20X9, Company B 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,the consolidating entry to prepare the consolidated financial statements for Company A as of December 31,20X9 will include a credit to Investment in Company B-Common Stock for:

Quizplus · Accepted Answer

The consolidating entry to prepare the consolidated financial statements for Company A as of December 31,20X9 will include the following:
- Investment in Company B - Common Stock: 
  - Beginning balance: $400,000
  - Add: Acquisition of 80% common stock ($400,000 x 80%): $320,000
  - Less: Dividends received from Company B ($100,000 x 20%): $20,000
  - Ending balance: $700,000
- Investment in Company B - Preferred Stock:
  - Beginning balance: $60,000
  - Add: Acquisition of 60% preferred stock ($60,000 x 60%): $36,000
  - Less: Dividends received from Company B ($60,000 x 10% x 60%): $3,600
  - Ending balance: $92,400
- Noncontrolling Interest: 
  - Beginning balance: $100,000
  - Add: Noncontrolling interest in Company B's net income ($100,000 x 20%): $20,000
  - Less: Dividends paid to noncontrolling interest ($40,000 x 20%): $8,000
  - Ending balance: $112,000
Therefore, the credit to Investment in Company B - Common Stock is $440,000.

The Following Data Applies to Questions 1 - 3