Question
Pail Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of Shovel Corporation at underlying book value on January
Pail Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of Shovel
Corporation at underlying book value on January 1, 20X9. At that date, the fair value of the noncontrolling
interest in Shovel's common stock was equal to 20 percent of the book value of its common stock. Shovel's
balance sheet at the time of acquisition contained the following balances:
Total Assets $ 600,000 Total Liabilities $ 90,000
Preferred Stock 100,000
Common Stock 150,000
Retained Earnings 260,000
Total Assets $ 600,000 Total Liabilities and Equities $ 600,000
The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on
January 1, 20X9. All of the $5 par value preferred shares are callable at $6 per share. During 20X9, Shovel
reported net income of $100,000 and paid no dividends.
4) Based on the preceding information, what is Shovel's contribution to consolidated net income for
20X9?
A) $90,000 B) $50,000 C) $100,000 D) $80,000
5) Based on the preceding information, what will be the amount of income to be assigned to the
noncontrolling interest in the 20X9 consolidated income statement?
A) $23,000 B) $15,000 C) $21,000 D) $18,000
6) Based on the preceding information, the amount assigned to noncontrolling stockholders' share of
preferred stock interest in the preparation of a consolidated balance sheet on January 1, 20X9, is:
A) $42,000 B) $36,000 C) $40,000 D) $48,000
7) Based on the preceding information, what is the portion of Shovel's retained earnings assignable to
its preferred shareholders on January 1, 20X9?
A) $50,000 B) $70,000 C) $60,000 D) $40,000
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