Question
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $1,800,000. At that date, the fair
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $1,800,000. At that date, the fair value of the noncontrolling interest was $1,200,000. The full amount of the differential was assigned to goodwill. On December 31, 20X7, Presley Pools management reviewed the amount attributed to goodwill and concluded an impairment loss of $26,000 should be recognized in 20X7. On January 2, 20X7, Presley purchased 20 percent of the outstanding preferred shares of Jacobs for $42,000. |
In its 20X6 annual report, Jacobs reported the following stockholders' equity balances at the end of the year: |
Preferred Stock (10 percent, $100 par) | $ | 200,000 |
Premium on Preferred Stock | 5,000 | |
Common Stock | 500,000 | |
Additional Paid-In CapitalCommon | 800,000 | |
Retained Earnings | 1,650,000 | |
Total Stockholders' Equity | $ | 3,155,000 |
The preferred stock is cumulative and has a liquidation value equal to its call price of $101 per share. Because of cash flow problems, Jacobs declared no dividends during 20X6, the first time it had missed a preferred dividend. With the improvement in operations during 20X7, Jacobs declared the current stated preferred dividend as well as preferred dividends in arrears; Jacobs also declared a common dividend for 20X7 of $10,000. Jacobs reported net income for 20X7 was $280,000. |
Required: | |
a. | Compute the amount of the preferred stockholders' claim on Jacobs Jacuzzis assets on December 31, 20X6. |
preferred stockholders claim
b. | Compute the December 31, 20X6, book value of the Jacobs common shares purchased by Presley. |
book value |
c. | Compute the amount of goodwill associated with Presleys acquisition of Jacobs common stock. |
goodwill |
d. | Compute the amount of income that should be assigned to the noncontrolling interest in the 20X7 consolidated income statement. |
noncontrolling interest
e. | Compute the amount of income from its subsidiary that Presley should have recorded during 20X7 using the fully adjusted equity method. |
income from subsidiary
f. | Compute the total amount that should be reported as noncontrolling interest in the December 31, 20X7, consolidated balance sheet.
noncontrolling interest |
g. | Prepare all consolidation entries that should appear in a worksheet to prepare a complete set of 20X7 consolidated financial statements for Presley Pools and its subsidiary. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
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