EXERCISE 9-10 Various Preferred Stock CharacteristicsCompute Consolidated Income

On January 1, 2014, Perez Company acquired 80% of Serrano Companys $300,000 par value common stock for

$200,000 and 40% of Serrano Companys 8%, $100,000 par value preferred stock for $86,000. During 2014,

Serrano Company reported net income of $80,000 and declared cash dividends of $45,000. Perez Company

reported net income (including dividends from subsidiary) of $200,000 in 2014.

Required:

In each of the following independent cases, compute consolidated net income for 2014.

Case 1: The preferred stock is noncumulative and nonparticipating.

Case 2: The preferred stock is cumulative and nonparticipating. Dividends were in arrears two years as of

January 1, 2014.

Case 3: The preferred stock is noncumulative and fully participating.

Case 4: The preferred stock is cumulative and fully participating. Dividends were in arrears one year as of

January 1, 2014.

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