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

Part A

          Preferred Stock -Pert Company Dr.     200,000

          Retained Earnings Dr. 32,000

               Investment in Pert Preferred Stock Cr.     92,800

               Noncontrolling Interest Cr. 139,200

          Retained Earnings =200,000*8%*2years = 32000

Investment in Pert Preferred Stock = (800*100)+(800*100*8%*2) = 92800

          Common Stock-Pert Company Dr.   150,000

          Retained Earnings Dr. 168,000

               Investment in Pert Common Stock Cr. 222,600

               Noncontrolling Interest Cr. 95,400

            Retained Earnings = $200,000 - $32,000=$168,000         

PART B

Operating income of Emerald Corporation $80,000

Income from preferred stock of Pert Company (16,000*0.40) 6,400

Income from common stock of Pert Company(34,000-16,000)*0.70   2,600

Consolidated net income   $99,000

    Income to noncontrolling interest:

Income from preferred stock of Pert Company ($16,000*0.60) $9,600

Income from common stock of Pert Company($34,000-$16,000)*0.30   5,400

Income to noncontrolling shareholders $15,000

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