Question: advanced accounting question using the equity method i have the...
Advanced accounting question using the equity method
I have the answer already, so I would like to know the answer to this question in bold below:
When figuring out the Pop's share of income, why is $30,000 being subtracted from 400,000 in income, since the question states that dividends paid are $200,000 ? That would mean 20,000 of dividends are paid to preferred stockholders given that the preferred stock is 10% cumulative, right ?
Son Company had net income of $400,000 and paid dividends of $200,000 during 2017. Son's stockholder's equity on December 31, 2016 and December 31, 2017, is summarized as follows (in thousands):
|Dec 31, 2016||Dec 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|
|Total Stockholder's equity||4,000||4,200|
On January 2, 2017, Pop Corporation purchased 300,000 common shares of Son at $4 per share.
Determine 1) Pop's income from Son at $4 per share.
2) balance of the investment in Son account at Dec 31, 2017
Answer: Income from Son ($400,000 - 30,000 preferred dividends ) x 30% interest acquired = 111,000
Investment cost 1,200,000
Add:net income 111,000
Less: Dividends (51,000) ---- ($ 200,000 dividends - 30,000 preferred stockholders' dividends) x 30%
Investment from Sun 1,260,000