extra chp 9 Pref. shares Q and A - Class example 1 On...

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Class example 1: On January 2, 2002, Playful Inc. purchased 60% of the outstanding common shares of Serious Ltd. for $6,000,000. Serious’ condensed balance sheet at that time was as follows: Current assets $ 8,000,000 Capital assets 17,000,000 $ 25,000,000 Current liabilities $ 5,000,000 Long-term liabilities 10,000,000 Shareholders’ equity: Common shares (100,000, no par) 2,500,000 Preferred shares (100,000, no par, $4 dividend, callable at $40; cumulative and nonvoting) 4,200,000 Retained earnings 3,300,000 $ 25,000,000 The fair value of Serious’ assets was the same as their book value except for capital assets, which had a fair value of $20,000,000. The capital assets have a remaining useful life of fifteen years. Goodwill was impaired by $50,000 in 2002. On October 1, 2002, Playful purchased 20,000 of Serious’ preferred shares at $32 per share. There was no dividend in arrears. Serious declared the fourth-quarter preferred dividend on December 15, 2002, payable on January 15, 2003, to holders of record on December 30, 2002. Note that the $4 dividend is paid out quarterly at $1 per quarter. Assume Serious Ltd. declared no dividends to common shareholders for 2002. The condensed balance sheets for both Playful and Serious were as follows on December 31, 2002: Playful Inc. Serious Ltd. Current assets
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extra chp 9 Pref. shares Q and A - Class example 1 On...

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