Purple Co. purchased 80% of the voting shares of Silver Ltd. on January 1, 20x2, for $669,200. On that date, Silver had the following balance sheet...
View the step-by-step solution to:

Question

Screen Shot 2019-09-30 at 8.32.27 PM.png


src="/qa/attachment/10690452/" alt="Screen Shot 2019-09-30 at 8.32.48 PM.png" />

Accounting question in regards to subsidiary's preferred shares without parent's holdings

Should goodwill be negative? Do I still impair negative goodwill? I am simply looking for check numbers such as consolidated net income, consolidated total assets, consolidated retained earnings, etc.

Screen Shot 2019-09-30 at 8.32.27 PM.png

Purple Co. purchased 80% of the voting shares of Silver Ltd. on January 1, 20x2, for $669,200. On that date, Silver had the
following balance sheet and related asset fair values. SILVER LTD.
Balance Sheet
at January 1, 20x2 Assets Book value Fair value
Cash $ 38,000 $ 38,000
Inventory 207,000 252,000
Land 195,000 195,000
Property, plant and equipment 1,010,000 900,000 Total assets 5.1m m Liabilities
Accounts payable $ 100,000 $ 100,000 Shareholders' equity
Preferred shares 450,000
Common shares 750,000
Retained earnings 150,000 Total liabilities and equities W The preferred shares are non-voting and are entitled to 10% cumulative dividends. At January 1, 20X2, there were cumulative dividends in arrears of $45,000, which were paid in 20X2. The preferred shares carried a call premium of
8% of face value. During 20X2, Silver earned $300,000 in income, and Purple earned $496,000. Dividends were declared and paid as follows: Silver Purple
Preferred shareholders 55 90,000
Common shareholders $150,000 $286,000 During 20X2, there were no interoompany transactions. Property, plant and equipment have a remaining useful life of 10 years. Goodwill was impaired by $4,125 for 20x2. Purple reoords its investment in Silver using the cost
method.

Screen Shot 2019-09-30 at 8.32.48 PM.png

The financial statements for Purple and Silver at December 31, 20x2, are as follows: Assets
Cash Inventory Land Property, plant and equipment
Investment in Silver Total assets Liabilities Accounts payable
Shareholders' equity Preferred shares Common shares Retained earnings
Total liabilities and equities Sales Cost of goods sold Gross profit
Expenses: Administration
Depreciation
Other expenses Investment income Net income Retained earnings at January 1, 20X2 Dividends — Preferred
— Co m mon Required 1. Prepare all calculations required for consolidation as at December 31, 20X2. Balance Sheets
at December 31, 20X2 2. Prepare the consolidated financial statements at December 31, 20x2 PURPLE $ 370,000 260,800
720,000
940,000
669,200 5.2mm $ 138,000 1,000,000
1 ,822,000 5.2mm Statements of Income and Retained Earnings
for the year ended December 31, 20X2 PURPLE
$4,045,000
2 556 000 1 489 000 680,000
188,000
245,000
1,113,000
120,000 496,000
1,612,000
2, 108,000 286,000
W SILVER $ 45,000
210,000
195,000 1,050,000 M
$ 90,000 450,000
750,000
210,000 5.1mm SILVER $960,000
370 000 590,000 73,000
49,000
168,000
290,000 300,000
150,000
450,000 90,000
150,000 5.210.000

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes