Journal entries—parent owns both common and preferred stock of subsidiary
The stockholders’ equity of Son Corporation on December 31, 2011, was as follows (in thousands):
|
15% preferred stock, $100 par, cumulative, nonparticipating, with |
|
|
one year’s dividends in arrears |
$1,000 |
|
Common stock, $10 par |
2,000 |
|
Other paid in capital |
200 |
|
Retained earnings |
300 |
|
Total stockholders’ equity |
$3,500 |
Pam Corporation acquired 50 percent of Son’s preferred stock for $600,000 and 80 percent of its common stock for $2,000,000 on January 1, 2012. Son reported net income of $400,000 and paid dividends of $300,000 in 2012.
REQUIRED
1. Prepare the journal entries to record Pam’s 50% investment in Son preferred stock.
2. Calculate the excess fair value/book value differential from Pam’s 80% investment in Son common. Assume the differential is goodwill.
3. Compute Pam’s income from Son—preferred for 2012.
4. Compute Pam’s income from Son—common for 2012 (assume a 10 year amortization period for the fair value/book value differential).
5. Calculate the noncontrolling interest in Son that will appear in the consolidated balance sheet of Pam Corporation and Subsidiary on December 31, 2012.