Subsidiary's preferred shares without parent's holding 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 Book value Fair value Assets Cash 38,000 252,000 195,000 900,000 $38,000 207,000 195,000 1010,000 Inventory Land Property, plant and equipment $1,450,000 Total assets $1,385,000 Liabilities Accounts payable $100,000 $100,000 Shareholders' equity 450,000 750,000 150,000 $1.450.000 Preferred shares Common shares Retained earnings Total liabilities and equities
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, Singular earned $300,000 in income, and Plural earned $496,000. Dividends were declared and paid as follows: Singular 90,000 $150,000 Plural Preferred shareholders Common shareholders $286,000 During 20X2, there were no intercompany transactions. Property, plant and equipment have a remaining useful life of 10 years. Goodwill was impaired by $4,125 for 20X2. Plural records its investment in Singular using the cost method The financial statements for Purple and Silver at December 31, 20X2, are as follows: Balance Sheets at December 31, 20X2 PURPLE SILVER Assets Cash $370,000 260,800 720,000 940,000 $45,000 210,000 195,000 1,050,000 Inventory Land Property, plant and equipment Investment in Silver 669,200 $2,960,000 Total assets $1,500,000
Liabilities $138,000 Accounts payable Shareholders' equity Preferred shares 90,000 450,000 750,000 1,000,000 1822,000 $2,960,000 Common shares Retained earnings Total liabilities and equities 210,000 $1,500,000 Statements of Income and Retained Earnings for the year ended December 31, 20X2 PURPLE SILVER Sales $4,045,000 2,556,000 $960,000 370,000 Cost of goods sold Gross profit 1,489,000 590,000 Expenses: 680,000 Administration 73,000 Depreciation Other expenses 188,000 245,000 49,000 168,000 1i13,000 120,000 290,000 Investment income Net income 496,000 1,612,000 300,000 150,000 Retained earnings at January 1, 20X2 2,108,000 450,000 Dividends - Preferred 90,000 150,000 $210,000 -Common 286,000 $1,822,000
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