On January 1, 20X2, Fischer Corporation purchased 80 percent of Culbertson Compa

Question

On January 1, 20X2, Fischer Corporation purchased 80 percent of Culbertson Company common shares and 60 percent of its preferred shares at underlying book value. At that date, the fair value of the noncontrolling interest in Culbertson’s common stock was equal to 20 percent of the book value of its common stock. Culbertson’s balance sheet at the time of purchase contained the following balances:

The preferred shares, which are cumulative with regard to dividends, have a 12 percent annual dividend rate and are five years in arrears on January 1, 20X2. All of the $10 par value preferred shares are callable at $12 per share after December 31, 20X0. During 20X2, Culbertson reported net income of $90,000 and paid no dividends.

Compute Culbertson’s contribution to consolidated net income for 20X2.

contribution to consolidated net income

Compute the amount of income to be assigned to the noncontrolling interest in the 20X2 consolidated income statement.

Income to noncontrolling interest

Compute the portion of Culbertson’s retained earnings assignable to its preferred shareholders on January 1, 20X2.

Compute the book value assigned to the common shareholders on January 1, 20X2.

Compute the amount to be reported as the noncontrolling interest in the consolidated balance sheet on January 1, 20X2.

On January 1, 20X2, Fischer Corporation purchased 80 percent of Culbertson Company common shares and 60 percent of its preferred shares at underlying book value. At that date, the fair value of the noncontrolling interest in Culbertson’s common stock was equal to 20 percent of the book value of its common stock. Culbertson’s balance sheet at the time of purchase contained the following balances:

Explanation / Answer

As per policy, only four parts of a question is allowed to answer, so answering a- d :

a) Culbertson’s contribution to consolidated net income for 20X2 = Net Income of year 20X2 * 80% = $90000 * 80% = $72000

b) the amount of income to be assigned to the noncontrolling interest in the 20X2 consolidated income statement = Net Income of year 20X2 * 20% = $90000 * 20% = $18000

c) the portion of Culbertson’s retained earnings assignable to its preferred shareholders on January 1, 20X2 = face value of preferred shares * interest rate * number of years = $130000 * 12% * 5 years = $78000

d) the book value assigned to the common shareholders on January 1, 20X2 = Face value of shareholders + retained earnings - retained earnings assignable to preferred shareholders = $390000 + $270000 - 78000 = $582000

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