Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Com
ID: 2478483 • Letter: P
Question
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $2,390,000. At that date, the fair value of the noncontrolling interest was $1,790,000. The full amount of the differential was assigned to goodwill. On December 31, 20X7, Presley Pools management reviewed the amount attributed to goodwill and concluded an impairment loss of $22,000 should be recognized in 20X7. On January 2, 20X7, Presley purchased 20 percent of the outstanding preferred shares of Jacobs for $78,600.
In its 20X6 annual report, Jacobs reported the following stockholders' equity balances at the end of the year:
The preferred stock is cumulative and has a liquidation value equal to its call price of $101 per share. Because of cash flow problems, Jacobs declared no dividends during 20X6, the first time it had missed a preferred dividend. With the improvement in operations during 20X7, Jacobs declared the current stated preferred dividend as well as preferred dividends in arrears; Jacobs also declared a common dividend for 20X7 of $15,000. Jacobs’ reported net income for 20X7 was $280,000.
Questions:
Compute the total amount that should be reported as noncontrolling interest in the December 31, 20X7, consolidated balance sheet.
Prepare all consolidation entries that should appear in a worksheet to prepare a complete set of 20X7 consolidated financial statements for Presley Pools and its subsidiary.
Please show your work.
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $2,390,000. At that date, the fair value of the noncontrolling interest was $1,790,000. The full amount of the differential was assigned to goodwill. On December 31, 20X7, Presley Pools management reviewed the amount attributed to goodwill and concluded an impairment loss of $22,000 should be recognized in 20X7. On January 2, 20X7, Presley purchased 20 percent of the outstanding preferred shares of Jacobs for $78,600.
Explanation / Answer
NCI equity = Beginning NCI equity Fair Value + NCI’s interest in subsidiary income – NCI’s share of dividends
= 1790000 + (280000x 60%) - (15000x 60%)
= $1949000
Journal entries:
Date Account Name Debit Credit Dec 31, 20X6 Common Stock of the subsidiary 414000 Additional Paid in capital of the subsidiary 534000 Retained earnings of the subsidiary 948000 Goodwill 2443000 Investment in the subsidiary 2390000 Non-controlling Interest 1949000