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3. advanced accounting question using the equity method i have the...

# Question: advanced accounting question using the equity method i have the...

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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 Retained earnings 500 700 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