Chapter 9, Problem 9.5E

To determine

Preferred stock ownership:A subsidiary’s preferred shareholders do have a claim over the net assets of the subsidiary, special attention must be given to that claim in the preparation of consolidated financial statements. The amount of equity accruing to preferred shareholders must be determined before dealing with the elimination of intercompany stock ownership. If the parent holds some of the subsidiaries preferred stock, its portion of the preferred stock interest must be eliminated.

the consolidation entries needed to prepare consolidated balance sheet immediately after P purchased S’s shares.