E 2-9 Calculate income and investment balance when investee capital structure includes preferred stock Son Company had net income of $400,000 and paid dividends of $200,000 during 2017. Son’s stockholders’ equity on December 31, 2016, and December 31, 2017, is summarized as follows (in thousands): December 31, 2016 December 31, 2017 10% cumulative preferred stock, $100 par $ 300 $ 300 Common stock, $1 par 1,000 1,000 Additional paid-in capital 2,200 2,200 Retained earnings 500 700 Total stockholders’ equity $4,000 $4,200 On January 2, 2017, Pop Corporation purchased 300,000 common shares of Son at $4 per share. Pop also paid $50,000 in cash for direct costs of acquiring the investment. Required Determine (1) Pop’s income from Son for 2017 and (2) the balance of the investment in the Son account at December 31, 2017. Assume the fair values of Son’s assets and liabilities equal book values.
E 2-9 Calculate income and investment balance when investee capital structure includes preferred stock
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Son Company had net income of $400,000 and paid dividends of $200,000 during 2017. Son’s
stockholders’ equity on December 31, 2016, and December 31, 2017, is summarized as follows (in thousands):December 31, 2016
December 31, 2017
10% cumulative preferred stock, $100 par
$ 300
$ 300
Common stock, $1 par
1,000
1,000
Additional paid-in capital
2,200
2,200
Retained earnings 500
700
Total stockholders’ equity
$4,000
$4,200
On January 2, 2017, Pop Corporation purchased 300,000 common shares of Son at $4 per share. Pop also paid $50,000 in cash for direct costs of acquiring the investment.
Required
Determine (1) Pop’s income from Son for 2017 and (2) the balance of the investment in the Son account at December 31, 2017. Assume the fair values of Son’s assets and liabilities equal book values.
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