Pen Corporation owns 80 percent of San Corporation's common stock, having acquired the interest at a fair value equal to book value on December 31, 2011. During 2012, Pen's separate income is $3,000,000 and San's net income is $500,000. Pen and San declare dividends in 2012 of $1,000,000 and $300,000, respectively.

REQUIRED1. Determine the cost of Pen's investment in San on December 31, 2011, if San has one year's preferred dividends in arrears on that date.2. Calculate Pen's net income and noncontrolling interest share for 2012.3. Calculate the underlying book value of Pen's investment in San on December 31, 2012.

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December 31, 2012 December 31, 2011 12% cumulative preferred stock, $100 par, callable at $105 per share Common stock, $10 par Other paid-in capital Retained earnings Total stockholders' equity $1,000 2,000 300 700 $1,000 300 900 $4,000 $4,200