On January 1, 20X2, Plier Corporation purchased 90 percent of Saw 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 Saw’s common stock was equal to 10 percent of the book value of its common stock. Saw’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, Saw reported net income of $70,000 and paid no dividends.

Required

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

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

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

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

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

Transcribed Image Text:

Total Assets Total Assets $860,000 $860,000 Total Liabilities Preferred Stock Common Stock Retained Earnings Total Liabilities & Equities $ 80,000 100,000 300,000 380,000 $860,000