Presley Pools Inc. purchased 60 percent of the common stock of Jacobs Jacuzzi Company on December 31,

Question:

Presley Pools Inc. purchased 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $\$ 1,800,000$. All the excess of the cost of the investment over the book value of the shares acquired was attributable to goodwill. On December 31, 20X7, the management of Presley Pools reviewed the amount attributed to goodwill and concluded an impairment loss of $\$ 26,000$ should be recognized in 20X7. On January 2, 20X7, Presley purchased 20 percent of the outstanding preferred shares of Jacobs for $\$ 42,000$.

In its $20 \mathrm{X} 6$ annual report, Jacobs reported the following stockholders' equity balances at the end of the year:

image text in transcribed

The preferred stock is cumulative and has a liquidation value equal to its call price of $\$ 101$ per share. Because of cash flow problems, Jacobs declared no dividends during 20X6, the first time a preferred dividend had been missed. With the improvement in operations during 20X7, Jacobs declared the current stated preferred dividend as well as preferred dividends in arrears; Jacobs also declared a common dividend for $20 \times 7$ of $\$ 10,000$. Jacobs' reported net income for $20 \mathrm{X} 7$ was $\$ 280,000$.
\section*{Required}

a. Compute the amount of the preferred stockholders' claim on the net assets of Jacobs Jacuzzi on December 31, 20X6.

b. Compute the December 31,20X6, book value of the Jacobs common shares purchased by Presley.

c. Compute the amount of goodwill associated with Presley's purchase of Jacobs common stock at the date of acquisition.

d. Compute the amount of income that should be assigned to the noncontrolling interest in the $20 \times 7$ consolidated income statement.
$e$. Compute the amount of income from its subsidiary that Presley should have recorded during $20 \times 7$ using the basic equity method.

f. Compute the total amount that should be reported as noncontrolling interest in the December 31, $20 \times 7$, consolidated balance sheet.
g. Present all elimination entries that should appear in a consolidation workpaper to prepare a complete set of $20 \times 7$ consolidated financial statements for Presley Pools and its subsidiary.

Fantastic news! We've Found the answer you've been seeking!