Cost of 90% (900 1,000) of SET 63,000

Implied value of 100% of SET 70,000

Shareholders' equity Total Preferred Ordinary

Preferred stock 40,000 42,000¹ (2,000)

Ordinary shares 20,000 20,000

Retained earnings 30,000 8,000² 22,000

90,000 50,000) 40,000

Acquisition differential (all allocated to patents) 30,000

Patent amortization Year 5 (six-year life) (5,000)

Unamortized patent, December 31, Year 5 25,000

NCI, date of acquisition

- interest in common shares (10% x 70,000) 7,000

- interest in preferred stock (100% x 50,000) 50,000

Total 57,000 (a)

Calculation of consolidated profit

PET profit 30,000

Less: Dividends from SET³ (2,700)

27,300

SET profit 22,000

Less: Patent amortization (5,000) 17,000

Consolidated profit 44,300

Attributable to:

PETs shareholders 39,000

NCI (4,000⁴ + 10% x [17,000 4,000⁴]) 5,300

44,300

Notes:

1. Liquidation value of 40,000 x 1.05 = 42,000
2. Dividends in arrears: 4,000 shares x $1/year x 2 years = 8,000
3. Dividends on ordinary shares: (15,000 4,000 x $1/year x 3 years) x 90% = 2,700
4. Income for preferred: 4,000 x $1/year x 1 year = 4,000

How do I find the values in notes 3 and 4?

On January 1, Year 5, PET Company acquired 900 ordinary shares of SET Company for $63,000. On this date, the shareholders' equity accounts of SET Company were as follows: Ordinary shares (1,000 no par value shares issued) $20,000 Preferred shares (4.000 no par value shares issued) (Note 1) 40,000 Retained earnings 30,000 $90,000 Note 1: The preferred shares are $1, cumulative, non-participating with a liquidation value of 1.05. They were two years in arrears on January 1, Year 5. The following are the statements of retained earnings for the two companies for Year 5: PET SET $50,000 $30,000 Retained earnings, beginning of year Profit 30,000 22,000 Dividends (25.000) (15,000) Retained earnings, end of year $55,000 $37,000 . Additional Information PET uses the cost method to account for its investment in SET. Any acquisition differential is allocated to patents with an estimated useful life of six years as at January 1, Year 5. Neither company has any patents recorded on their separate-entity records