(Estimated Time: 50 to 65 Minutes) The individual anancial statements for Rig Company and Little Corporation for the year ending December 31, 1998, follow: Big Little Revenues Company Corporation Expenses $ 900.000 $ 389,026 Interest income (702,000) (200,000) Dividend income-Little Corporation preferred stock 0 10,974 Income of subsidiary--Little Corporation common stock 2.400 116,400 Net income .. $ 316,800 $ 200,000 Retained earnings, 1/1/98 .... $1,300.000 $ 700.000 Net income (above). 316,800 200,000 Dividends--preferred stock (6,000) Dividends-common stock (136,800) (24,000) Retained earnings, 12/31/98 $1,480,000 $ 870.000 Current assets $ 484,525 $ 850,000 Investment in Big Company bonds -0- 108,711 Investment in Little Corporation preferred stock 26,800 Investment in Little Corporation common stock 958,000 Land, buildings, and equipment (net) 600,000 750,000 Total assets. $2.069,325 $1,708,711 Current liabilities $ 202,000 $ 138,711 177,325 -0- Bonds payable ($200,000 face value) 60,000 Preferred stock-$60 par value; 1,000 shares outstanding 200,000 Common stock-$4 par value; 50,000 shares outstanding 240,000 Common stock-$10 par value; 24,000 shares outstanding 10.000 400.000 Additional paid-in capital. 1.480,000 870,000 Retained earnings (above) $2.069,325 $1.708,711 Total liabilities and equities Note: Parentheses indicate a reduction. Additional Information: On January 1, 1993, Big Company purchased 14,400 shares of Little's common stock (80 percent SONO INOM INNO ..( SOLO of the 18,000 shares outstanding at that date). Big also bought 40 percent of the company's outstanding preferred stock (400 shares). A total of $530,800 was paid by Big for these two investments: $504,000 for the common stock and $26,800 for the preferred. At the date of acquisition, Big believed that no significant difference existed between the book value of Little's assets and liabilities and their fair market values. Little Corporation reported the following stockholders' equity accounts on January 1, 1993: Preferred stock-$60 par value, 10% cumulative dividend, nonparticipating nonvoting; call value of $72 per share; 1,000 shares outstanding Common stock-$10 par value: 18,000 shares outstanding Additional paid-in capital Retained earnings Total stockholders' equity On January 1, 1997, Little acquired on the open market half of the $200,000 outstanding bonds payable of Big Company. The bonds pay 12 percent cash interest each December 31 but were originally issued at a price yielding an effective rate of 15 percent. On the date of Little's purchase, Big was reporting a total book value for this debt of $173,100. Because of a recent decline in the prime interest rate. Little had to pay $110,670 for these bonds. This price was calculated to produce a 10 percent yield. Each company uses the effective interest rate method of amortization To raise new capital for expansion, Little Corporation issued an additional 6,000 shares of common stock to outsiders on January 1, 1998. Because of the company's profitability, the stick was sold for $60 per share. Because none of these shares were acquired by Big, the parent did not record the transaction Big has applied the partial equity method to the investment in Little's common stock while using the cost method for preferred shares. From 1993 through 1997, Little's retained eamings went up $440.000. Since preferred stock dividends were paid in full each year, the entire increase was directly attributable to the common shares (80 percent owned by Big). Because of Little's sale of additional shares at the beginning of 1998, Big now holds only 60 percent of the common stock (14,400/24,000). Thus, the parent recognized equity income of $116.400 in 1998 in connection with its ownership of the subsidiary's common stock, 60 percent of the S194,000 income applicable to common stock (the $200,000 reported total less the $6,000 preferred stock dividend). The year-end investment in the common stock balance is made up of the following components: Purchase price-common stock ... $504,000 Increase in book value during prior years ($440,000 X 80%). 352.000 Equity accrual for current year.. 116.400 Dividends paid on common stock during current year ($24,000 X 60%), (14,400) Investment in Little Corporation common stock12/31198 $958,000 Any goodwill will be amortized over a 40-year period. Required: Prepare consolidated balances for Big and Little for 1998 financial statements. (Estimated Time: 50 to 65 Minutes) The individual anancial statements for Rig Company and Little Corporation for the year ending December 31, 1998, follow: Big Little Revenues Company Corporation Expenses $ 900.000 $ 389,026 Interest income (702,000) (200,000) Dividend income-Little Corporation preferred stock 0 10,974 Income of subsidiary--Little Corporation common stock 2.400 116,400 Net income .. $ 316,800 $ 200,000 Retained earnings, 1/1/98 .... $1,300.000 $ 700.000 Net income (above). 316,800 200,000 Dividends--preferred stock (6,000) Dividends-common stock (136,800) (24,000) Retained earnings, 12/31/98 $1,480,000 $ 870.000 Current assets $ 484,525 $ 850,000 Investment in Big Company bonds -0- 108,711 Investment in Little Corporation preferred stock 26,800 Investment in Little Corporation common stock 958,000 Land, buildings, and equipment (net) 600,000 750,000 Total assets. $2.069,325 $1,708,711 Current liabilities $ 202,000 $ 138,711 177,325 -0- Bonds payable ($200,000 face value) 60,000 Preferred stock-$60 par value; 1,000 shares outstanding 200,000 Common stock-$4 par value; 50,000 shares outstanding 240,000 Common stock-$10 par value; 24,000 shares outstanding 10.000 400.000 Additional paid-in capital. 1.480,000 870,000 Retained earnings (above) $2.069,325 $1.708,711 Total liabilities and equities Note: Parentheses indicate a reduction. Additional Information: On January 1, 1993, Big Company purchased 14,400 shares of Little's common stock (80 percent SONO INOM INNO ..( SOLO of the 18,000 shares outstanding at that date). Big also bought 40 percent of the company's outstanding preferred stock (400 shares). A total of $530,800 was paid by Big for these two investments: $504,000 for the common stock and $26,800 for the preferred. At the date of acquisition, Big believed that no significant difference existed between the book value of Little's assets and liabilities and their fair market values. Little Corporation reported the following stockholders' equity accounts on January 1, 1993: Preferred stock-$60 par value, 10% cumulative dividend, nonparticipating nonvoting; call value of $72 per share; 1,000 shares outstanding Common stock-$10 par value: 18,000 shares outstanding Additional paid-in capital Retained earnings Total stockholders' equity On January 1, 1997, Little acquired on the open market half of the $200,000 outstanding bonds payable of Big Company. The bonds pay 12 percent cash interest each December 31 but were originally issued at a price yielding an effective rate of 15 percent. On the date of Little's purchase, Big was reporting a total book value for this debt of $173,100. Because of a recent decline in the prime interest rate. Little had to pay $110,670 for these bonds. This price was calculated to produce a 10 percent yield. Each company uses the effective interest rate method of amortization To raise new capital for expansion, Little Corporation issued an additional 6,000 shares of common stock to outsiders on January 1, 1998. Because of the company's profitability, the stick was sold for $60 per share. Because none of these shares were acquired by Big, the parent did not record the transaction Big has applied the partial equity method to the investment in Little's common stock while using the cost method for preferred shares. From 1993 through 1997, Little's retained eamings went up $440.000. Since preferred stock dividends were paid in full each year, the entire increase was directly attributable to the common shares (80 percent owned by Big). Because of Little's sale of additional shares at the beginning of 1998, Big now holds only 60 percent of the common stock (14,400/24,000). Thus, the parent recognized equity income of $116.400 in 1998 in connection with its ownership of the subsidiary's common stock, 60 percent of the S194,000 income applicable to common stock (the $200,000 reported total less the $6,000 preferred stock dividend). The year-end investment in the common stock balance is made up of the following components: Purchase price-common stock ... $504,000 Increase in book value during prior years ($440,000 X 80%). 352.000 Equity accrual for current year.. 116.400 Dividends paid on common stock during current year ($24,000 X 60%), (14,400) Investment in Little Corporation common stock12/31198 $958,000 Any goodwill will be amortized over a 40-year period. Required: Prepare consolidated balances for Big and Little for 1998 financial statements