Question
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $2,780,000. At that date, the fair
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $2,780,000. At that date, the fair value of the noncontrolling interest was $2,180,000. 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 $20,000 should be recognized in 20X7. On January 2, 20X7, Presley purchased 20 percent of the outstanding preferred shares of Jacobs for $71,400.
In its 20X6 annual report, Jacobs reported the following stockholders' equity balances at the end of the year: |
Preferred Stock (10 percent, $100 par) | $ | 340,000 |
Premium on Preferred Stock | 6,000 | |
Common Stock | 690,000 | |
Additional Paid-In CapitalCommon | 880,000 | |
Retained Earnings | 1,600,000 | |
Total Stockholders' Equity | $ | 3,516,000 |
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 $20,000. Jacobs reported net income for 20X7 was $300,000.
a. Record the basic consolidation entry.
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