Emerald Corporation acquired 10,500 shares of the common stock and 800 shares of

Question

Emerald Corporation acquired 10,500 shares of the common stock and 800 shares of the 8 percent preferred stock of Pert Company on December 31, 20X4, at the book value of the underlying stock
interests. At that date, the fair value of the noncontrolling interest in Pert's common stock was equal to 30 percent of the book value of its common stock interest. Pert reported the following balance sheet amounts on January 1, 20X5:

    

Pert's preferred stock is $100 par value, and its common stock is $10 par value. The preferred dividends are cumulative and are two years in arrears on January 1, 20X5. Pert reports net income of $34,000 for 20X5 and pays no dividends.

   

Present the worksheet consolidation entries needed to prepare a consolidated balance sheet on January 1, 20X5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

record the basic consolidation entry.

Assuming that Emerald reported income from its separate operations of $80,000 in 20X5, compute the amount of consolidated net income and the amount of income to be assigned to the controlling shareholders in the 20X5 consolidated income statement.

Consolidated net income

income to controlling interest

Emerald Corporation acquired 10,500 shares of the common stock and 800 shares of the 8 percent preferred stock of Pert Company on December 31, 20X4, at the book value of the underlying stock
interests. At that date, the fair value of the noncontrolling interest in Pert's common stock was equal to 30 percent of the book value of its common stock interest. Pert reported the following balance sheet amounts on January 1, 20X5:

Explanation / Answer

RETAINED EARINGS A/C........

TO MINORITY INTEREST

TO INVESTMENTS

( BEING PRE ACQUISTION PROFITS DISTRIBUTED)

60000

140000

PRE - ACQUISTION DIVIDEND A/C

TO INVESTMENTS

TO MINORITY INTEREST

(BEING DIVIDEND ARREARS DISTRIBUTED IN THEIR RESPECTIVE RATIOS)

12800

19200

COMMON STOCK A/C

PREFERENCE STOCK A/C

TO INVESTMENTS

TO MINORITY INTEREST

( BEING CAPITAL DISTRIBUTED IN CONTROLING AND NON CONTROLLING RATIOS)

150000

200000

185000

165000

INVESTMENTS A/C

TO CAPITAL RESERVES

( BEING EXCESS AMOUNT TRANSFERRED)

32800

POST ACQUISTION PROFITS A/C

TO CONSOLIDATED P/L A/C  

TO MINORITY INTEREST

( BEING POST ACQUISTION PROFITS DISTRIBUTED IN THEIR HOLDING RATIOS)

23800

10200

* WORKING NOTES:-

EMERALD CORPORATION COMMON STOCK = 10500 SHARES

SHARES OF PERT CORPORATION = 150000/10= 15000 SHARES

RATIO OF HOLDING OF EMERALD CORPORATION = 10500/15000=70%

RATIO OF HOLDING OF PERT CORPORATION( MINORITY INTERST / NON- CONTROLLING INTEREST) = 30%

* CALCULATION OF CAPITAL RESERVES:-

SHARE IN COMMON STOCK = 150000*70%= 105000

PREFERENCE STOCK = 200000

LESS:-(140000+12800+185000)=337800

CAPITAL RESERVES= 32800

{B}

CONSOLIDATED NET INCOME :-

CURRENT INCOME =$80000

ADD:- CURRENT YEAR PROFITS OF SUBSIDIARY COMPANY =$34000

CONTROLLING INTERESTS OF EMERALD =$34000*70%=23800

CONSOLIDATED INCOME OF EMERALD = 23800+80000= $103800

MINORITY INTERESTS OF PERT =34000*30%=$10200

SERIAL NO. PARTICULARS DEBIT$ CREDIT$ 1

RETAINED EARINGS A/C........

TO MINORITY INTEREST

TO INVESTMENTS

( BEING PRE ACQUISTION PROFITS DISTRIBUTED)

200000

60000

140000

2

PRE - ACQUISTION DIVIDEND A/C

TO INVESTMENTS

TO MINORITY INTEREST

(BEING DIVIDEND ARREARS DISTRIBUTED IN THEIR RESPECTIVE RATIOS)

32000

12800

19200

3

COMMON STOCK A/C

PREFERENCE STOCK A/C

TO INVESTMENTS

TO MINORITY INTEREST

( BEING CAPITAL DISTRIBUTED IN CONTROLING AND NON CONTROLLING RATIOS)

150000

200000

185000

165000

4

INVESTMENTS A/C

TO CAPITAL RESERVES

( BEING EXCESS AMOUNT TRANSFERRED)

32800

32800

5

POST ACQUISTION PROFITS A/C

TO CONSOLIDATED P/L A/C  

TO MINORITY INTEREST

( BEING POST ACQUISTION PROFITS DISTRIBUTED IN THEIR HOLDING RATIOS)

34000

23800

10200

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