Question
On January 1, 20X9, Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company, for $400,000
On January 1, 20X9, Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Stanford Company held by the noncontrolling interest was $100,000. Stanford Company's balance sheet contained the following balances:
Preferred Stock ($5 par value)
$
100,000
Common Stock ($10 par value)
200,000
Retained Earnings
300,000
Total Stockholders' Equity
$
600,000
For the year ended December 31, 20X9, Stanford Company reported net income of $100,000 and paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of 10 percent.
1) Based on the preceding information, what will be the equity method income reported by Princeton Company from its investment in Stanford Company during 20X9?
A) $32,000
B) $30,000
C) $72,000
D) $48,000
2) Based on the preceding information, the consolidating entry to prepare the consolidated financial statements forPrinceton Company as of December 31, 20X9 will include a credit to Investment in Stanford CompanyCommon Stock for:
A) $506,000
B) $448,000
C) $400,000
D) $500,000
3) Based on the preceding information, the consolidating entry to prepare the consolidated financial statements for Princeton Company as of December 31, 20X9 will include a credit to noncontrolling interest in Stanford Company for:
A) $140,000
B) $154,000
C) $152,000
D) $150,000
Answers are bolded. Please explain how to get these numbers.
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