Winner Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of First Corporation at underlying book value on January 1, 20X9. At that date, the fair value of the noncontrolling interest in First's common stock was equal to 20 percent of the book value of its common stock. First'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, First reported net income of $100,000 and paid no dividends.

-Based on the preceding information,what is First's contribution to consolidated net income for 20X9?

Question

Winner Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of First Corporation at underlying book value on January 1, 20X9. At that date, the fair value of the noncontrolling interest in First's common stock was equal to 20 percent of the book value of its common stock. First'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, First reported net income of $100,000 and paid no dividends.
 
-Based on the preceding information,what is First's contribution to consolidated net income for 20X9?

Quizplus · Accepted Answer

We need to calculate the income attributable to First's common noncontrolling interest to determine the consolidated net income.

First, we calculate the preferred dividends in arrears:

Preferred dividends in arrears = (10% x $50,000 x 4 years) = $20,000

Then, we calculate the preferred dividends for the current year:

Preferred dividends for the current year = 10% x $50,000 = $5,000

Since no preferred dividends were paid during the year, the total preferred dividends to be paid to the preferred shareholders is $20,000 + $5,000 = $25,000.

Next, we calculate the income attributable to the noncontrolling interest in First's common stock:

Income to noncontrolling interest = [($100,000 - $25,000) x 0.2] = $15,000

Finally, we can calculate the consolidated net income:

Consolidated net income = $100,000 - $25,000 - $15,000 = $60,000

Therefore, First's contribution to the consolidated net income for 20X9 is $60,000.

Winner Corporation Acquired 80 Percent of the Common Shares and 70