Wally Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares...

Question:

Wally Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1, 20X6. At that date, the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock. Safety's balance sheet at the time of acquisition contained the following balances:

Assets 700,000 Liabilities 110,000
Preferred stock 100,000
Common stock 200,000
Retained Earnings 290,000
Total Assets 700,000 Total Liabilities 700,000

The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1, 20X6. All of the $10 par value preferred shares are callable at $12 per share. During 20X6, Safety reported net income of $80,000 and paid no dividends.

Based on the preceding information, what is Safety's contribution to consolidated net income for 20X6?

Consolidated Financial Statements

Consolidated Financial Statements are required from the ultimate parents when they enter into business combinations with its subsidiaries. Business combinations are accounted when an entity purchase portion of another's entity that resulted into control.

Answer and Explanation:

Safety's contribution to consolidated net income for 20X6 is 80,000

Since there were no over/undervaluation of assets, and there were also no other items to affect net income.


Learn more about this topic:

Loading...
Investment Risks: Definition & Types

from CFP Certification Exam Study Guide - Certified Financial Planner

Chapter 8 / Lesson 1
4.6K

Related to this Question

Explore our homework questions and answers library