E9-6 Subsidiary with Preferred Stock Outstanding a.

Entries recorded by Clayton Corporation: (1) Investment in Topple Common Stock Investment in Topple Preferred Stock Cash Record purchase of Topple stock. Cash Investment in Topple Common Stock Record dividends from Topple: $25,500 = ($50,000 - $16,000) x .75 Cash Dividend Income Record dividends on preferred stock from Topple: $16,000 x .40 Investment in Topple Common Stock Income from Subsidiary Record equity-method income: $40,500 = ($70,000 - $16,000) x .75 270,000 80,000

350,000

(2)

25,500

25,500

(3)

6,400

6,400

(4)

40,500

40,500

E9-6 (continued) b. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Common Stock Investment in Topple Common Stock Eliminate income from subsidiary. Dividend Income Preferred Dividends Declared Preferred Eliminate dividend income from subsidiary preferred. Income to Noncontrolling Interest Dividends Declared Preferred Stock Dividends Declared Common Stock Noncontrolling Interest Assign income to noncontrolling interest: $23,100 = [($70,000 - $16,000) x .25] + ($16,000 x .60) $9,600 = $16,000 x .60 $8,500 = ($50,000 - $16,000) x .25 $5,000 = $13,500 - $8,500 Common Stock Topple Company Retained Earnings, January 1 Investment in Topple Common Stock Noncontrolling Interest Eliminate beginning investment balance. Preferred Stock Topple Company Investment in Topple Preferred Stock Noncontrolling Interest Eliminate subsidiary preferred stock. 40,500 25,500 15,000

E(2)

6,400

6,400

E(3)

23,100

9,600 8,500 5,000

E(4)

150,000 210,000

270,000 90,000

E(5)

200,000

80,000 120,000

E9-7 Preferred Dividends and Call Premium a. Culbertson Company's contribution to 20X2 consolidated net income is equal to its reported net income of $70,000. Income assigned to noncontrolling interest: Preferred shares [.40($100,000 x .12)] Common shares {.10[$70,000 - ($100,000 x .12)]} Total income assigned to noncontrolling interest c. Retained earnings assignable to preferred shareholders: Dividends in arrears [5 years x ($100,000 x .12)] Call feature ($2 x 10,000 shares) Total retained earnings assigned to preferred stock d. Book value of common shares: Par value of common shares outstanding Retained earnings balance Less: Balance assigned to preferred shares Book value of common shares e. Total noncontrolling interest: Preferred stock [.40($100,000 + $80,000)] Common stock (.10 x $600,000) Total noncontrolling interest $ 72,000 60,000 $132,000 $380,000 (80,000) $300,000 300,000 $600,000 $60,000 20,000 $80,000 $ 4,800 5,800 $10,600

b.