Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Com
ID: 2486705 • Letter: P
Question
Presley Pools Inc. acquired 60 percent of the common stock of Jacobs Jacuzzi Company on December 31, 20X6, for $2,780,000. At that date, the fair value of the noncontrolling interest was $2,180,000. 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 $20,000 should be recognized in 20X7. On January 2, 20X7, Presley purchased 20 percent of the outstanding preferred shares of Jacobs for $71,400.
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 $20,000. Jacobs’ reported net income for 20X7 was $300,000.
a. Record the basic consolidation entry.
In its 20X6 annual report, Jacobs reported the following stockholders' equity balances at the end of the year:
Explanation / Answer
2016
Investment cost $ 2,780,000
Book value :
Common stock $ 690,000
Addl. paid in capital $ 880,000
Retained earnings $ 1,600,000
Total $ 3,170,000
Parent's share 60% $ 1,902,000
Goodwill $ 878,000
Debit Investment in subsidiary a/c $ 2,780,000
Credit Cash $ 2,780,000
( In the books of Presley Pools Inc)
2017
Debit Impairment Loss a/c $ 20,000
Credit Goodwill a/c $ 20,000
Debit Investment in subsidiary - Preferred stock $ 68,000
Debit Goodwill a/c $ 3,400
Credit Cash a/c $ 71,400
( entries in the books of Presley Pools Inc)
Debit Dividends on Prefererd stock a/c $ 68,000
Credit cash a/c $ 68,000
Debit dividends on Common Stock $ 20,000
Credit Cash a/c $ 20,000
( in the books of Jacobs Jacuzzi Company )
Basic consolidation entry :
Debit Common Stock of Subsidiary $ 690,000
Debit Additional Paid-in-Capital $ 880,000
Debit Retained Earnings $ 1,600,000
Debit Goodwill $ 878,000
Credit investment in subsidiary $ 2,780,000
Credit Non-Controlling Interest $ 1,268,000
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