the stockholders equity of son corporation on december 31 2011 265263

The stockholders’ equity of Son Corporation on December 31, 2011, was as follows (in thousands):

15% preferred stock, $100 par, cumulative, nonparticipating, with

one year’s dividends in arrears …………………………… $1,000

Common stock, $10 par ……………………………………………. 2,000

Other paid in capital …………………………………………………. 200

Retained earnings ……………………………………………………. 300

Total stockholders’ equity ………………………………………… $3,500

Pam Corporation acquired 50 percent of Son’s preferred stock for $600,000 and 80 percent of its common stock for $2,000,000 on January 1, 2012. Son reported net income of $400,000 and paid dividends of $300,000 in 2012.

REQUIRED

1. Prepare the journal entries to record Pam’s 50% investment in Son preferred stock.

2. Calculate the excess fair value/book value differential from Pam’s 80% investment in Son common. Assume the differential is goodwill.

3. Compute Pam’s income from Son—preferred for 2012.

4. Compute Pam’s income from Son—common for 2012 (assume a 10 year amortization period for the fair value/book value differential).

5. Calculate the noncontrolling interest in Son that will appear in the consolidated balance sheet of Pam Corporation and Subsidiary on December 31, 2012.