Parrot Company purchased 75% of the outstanding common shares and 50% of the out
ID: 2585434 • Letter: P
Question
Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2013, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows:
Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2011 and 2012 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%. The capital assets of Saltines had a remaining useful life of ten years at January 1, 2003. Any unallocated purchase discrepancy would be treated as goodwill, which is assessed annually for impairment.
Parrot accounts for its interest in Saltines using the cost method and accounts for the noncontrolling interest in its consolidated financial statements based on the fair value of the subsidiary, proportionate to the price paid for the controlling interest.
Parrot's net income for 2013 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2013. Saltines' net income for 2013 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2013.
(Parrot included all dividends received in its income for 2013.) Calculate the amount of the noncontrolling interest on the consolidated balance sheet of Parrot and its subsidiary as at December 31, 2013. (Can someone please explain where they get the following answers from? A break down of where the figures are derived from? I can't work it out, my answer doesn't match especially for the $480000 and $613333 - it just does't make sense?? Shouldn't it be $460000 and $460000/.75 that gives 613333)
Consideration for 75% of common shares $480,000 Implied value of 100% of common shares S613.333 $800,000 Net book value at acquisition Allocated to preferred shares: Stated value $200.000 Redemption premiunm Dividends in arrears 16,000 20000 236.000 564,000 Acquisition differential 49,333 Allocated to: Receivables Inventory Capital assets (10,000) (30,000) 80,000 40,000 9.333 GoodwillExplanation / Answer
Soluion:
Consideration for 75% Common Shares - $460,000
Implied value of 100% Common Shares - $460,000/75%
Implied value of 100% Common Shares - $613,333.33