Us

ethef
oll
owi
ngi
nfor
mat
ionf
orQues
tions1and2.

Par
mi nterCorporat
ionownsan80% int er
estinthecommons t
ockofSanc hez
Corporati
onand20% ofSanc hez’
spreferr
eds tockonDec
ember31,2005.Sanc hez
had2005neti ncomeof$30,000.Sanchez’sequit
ywasasfol
lows:10% pr
eferr
eds t
ock
$50,000; Commons t
ock350,000

1.Howmuc
hshoul
dthePar
mint
er’
sInv
est
menti
nSanc
hezc
hangedur
ing2005?

a.$5,
000.

b.$20,
000.

c
.$25,
000.

d.$30,
000.

Ofthe$30,
000,5,
000i
spref
err
eddi
vi
dendsandi
nther
emai
nder25,
000has80% go
toPar
minterf
or$20,
000.

2.Whatshoul
dbet henoncont
rol
li
ngi
nter
estex
pens
eint
hec
ons
oli
dat
edf
inanc
ial
stat
ementsofPar
mi nt
er?

a.$5,
000.

b.$20,
000.

c
.$25,
000.

d.$30,
000.

3.Whenapar entacqui
restheprefer
redstoc
kofasubsi
diary
,ther
ewi l
lbea
const
ruct
ivereti
rementthatel
iminatest
heequi
tyr
elat
edt othepref
erreds
toc
khel
d
bytheparentand

a.anydi
fferencepaidabovet
heparval
uef
irs
treducesaddi
ti
onalpai
d-i
ncapi
taland
thenret
ainedearnings.

b.anydiffer
encepaidabovet
heparv
aluef
irs
treduc
esr
etai
nedear
ningsandt
hen
addit
ionalpaid-
incapi
tal
.

c
.anydi
ffer
enc
epai
dabov
etheparv
aluei
ncr
eas
esaddi
ti
onalpai
d-i
ncapi
tal
.

d.anydi
ffer
enc
epai
dabov
etheparv
aluei
ncr
eas
esr
etai
nedear
nings
.
4.Ifapar
entcompanyhascont
rol
li
ngint
eres
tinas ubsi
diar
ywhic
hhasnopotent
ial
ly
dil
uti
vesecur
iti
es,t
heni
nthecal
cul
ati
onofconsol
idatedEPS,i
twil
lbenec
ess
aryto

a.onl
ymakeanadj
ust
mentofs
ubs
idi
ary
’sbas
icear
nings
.

b.replacetheparent
’sequi
tyi
nsubs
idi
aryear
ningswi
tht
hepar
ent
’sequi
tyi
n
subsidiar
y’sdi
lut
edEPS.

c
.makear
epl
acementc
alc
ulat
ioni
nthepar
ent
'sbas
icear
ningsf
ort
heEPS.

d.onl
yus
ethepar
ent
'scommons
har
esandcommons
har
eequi
val
ent
s.

5.Parnabyhas25,000commons toc
ksharesoutstandi
ngandi ts100%- owned
subsi
diarySandalhas5,
000c ommons toc
ks haresouts
tanding.Thes epar
atei
ncome
forParnabyandSandalis$150,000and$75,000respect
ivel
y.EPSf ortheconsol
idat
ed
companyi s

a.$5.
00.

b.$6.
00.

c
.$7.
50.

d.$9.
00.

(
150,
000+75,
000)
/25,
000

Sol
uti
onE10-
4[Pr
efer
reds
toc
k ]
1 I
nves
tmentc
ost(
fai
rval
ueequal
sbookv
alue)
Totalstockholders’
e qui
tyofSa n $4,000,000
Les
s:Preferrede quit
y10,000s hares(
$100+$5+$12) 1,170,000
Commone qui ty 2,830,000
Percentowne d 80%
Inv
e s
tme ntc ost(f
airval
uea ndbookval
ue) $2,264,000
2
Cons
oli
dat
ednet
inc
omeandnonc
ont
rol
li
ngi
nter
est
shar
e
Pensepa r
atei
ncome $3,
000,
000
Add:I
nc omefrom San(
$500,
000-$120,
000)80% 304,
000
Cons
olidatedneti
ncome $3,
304,
000
 Nonc ontrol
li
ngint
eres
tshar
e($380,
000c
ommon
i
nc ome 
20%)+$120, 000pref
err
edinc
ome $196,
000
3 Under
lyi
ngbookv
alue
Totalstockholder
s’equi
ty $4,200,000
Les
s:Pr
ef erredequi
ty(10,
000s har
es$105callpr
ice) 1,050,000
Commone qui
ty 3,150,000
Perc
e ntowne d 80%
Underlyingbookv al
ueDe c
e mber31,2012 $2,520,000

Sol
uti
onP10-
4[Pr
efer
reds
toc
k ]

Pr
eli
minar
ycomput
ati
ons

Fai
rv alue— bookv
aluedi
ffer
ent
ial
Inv
e s
t me ntcos
t $240,
000
Impl
iedtotalf
airvalueofSa m($240,000/80%) $300,
000
Less
: Bookval
uea cquir
ed
Sam’sst
oc kholder
s’equi
tyJanua r
y1,2010 $325,
000
Less
:Preferredequit
ySam’ s 100,
000
commone qui
ty 225,
000
Excessf
airvalueoverbookv al
ue=Goodwill $75,000
Inc
omef r
om Sam for2011
$40,
000
Equit
yinSa m’si
ncome( $60,
000-$10,
000pf)80%
Add:Intercompanyprofi
tsbegi
nni
nginvent
ory
(
$50,00040% 3/5) 12,
000

Less:Int er
c ompa nyprofi
tsendinginvent
ory
(
$60, 00040%4/ 6) (
16,
000)
Add: Re al
iza t
ionof80% of$10,000pr ofi
tdef
err
edon
l
andf rom 2010 8,
000
Add:Cons tructivegainonbonds( $9,
00080%) 7,
200
Less:Piec eme alrecogni
ti
onof gai
n
(
$9,000/ 3y ea rs1/2year80%) (
1,200)
Inc omef rom Sam $50,
000
Inv
estmenti nSam Dec ember31, 2011
Underly
ingbookv al
ue( $390,
000-$100,000)80% $232,
000
Add:80% ofGoodwi l
l 60,
000
Less:
Unr eal
izedinventoryprofi
t (
16,
000)
Add:Cons t
ructi
vega inless1/2yearpi
eceme al
r
ecogniti
on($9,000-$1, 500)80% 6,
000
I
nv es
tme ntinSa kDec ember31 $282,
000
 Nonc
ont
rol
li
ngi
nter
ests
har
e— c
ommon

Sam’sreportedincomel essincomet opreferr

ed
(
$60,000-$10, 000) $50,
000
Recogniti
onofpr eviouslyde fer
redga i
nonl and 10,
000
Construct
ivegainonbondsl ess1/2y earpi
ecemeal
r
ecogniti
onofga i
n( $9,000-$1, 500) 7,
500
Sam’sreali
zedincomet oc ommon 67,
500
Noncontrolli
nginterestpe rcentage 20%
Nonc ontr
olli
ngint erestshare—c ommon $13,
500

ParCorporati
onandSubsi
diar
y
Cons
oli
dationWorki
ngPapers
f
ortheyearendedDecember31,2016
Adj
ustments Consol
idat
ed
Par Sam 80% and St
atements
El
iminat
ions
Inc
omeSt at ement
Sal
es $900,
000 $300,
000 a60,
000 $1,
140,
000
Gainonland 10,
000 d10,
000 20,
000
Int
eres
tinc ome 6,
500 e 6,500
Gainonbonds e 9,000 9,
000
Inc
omef rom Sa m 50,
000 f
50,
000
Costofsales 600,
000* 140,
000* c
16,
000 a 60,
000
b12,
000 684,
000*
Oper
a t
ingexpenses 208,
500* 90,
000* 298,500*
I
nter
e s
texpense 10,
000* e 5,
000 5,
000*
Consol
idat
edne ti
ncome 181,500
Noncontr
oll
ingshare
Pr
eferr
ed i
10,
000 10,
000*
Noncontrol
.Shar
e— i
13,
500 13,
500*
common
Control
li
ngshar
eofNI $158,
000 $ 60,
000 $158,
000

Ret
ainedEar
nings
Retai
nede ar
nings— Par $132,
000 $132,
000
Retai
nede ar
nings— Sam $ 50,
000 h50,
000
Control
li
ngs har
eofNI 158,
000 60,
000 158,
000
Div
idends 100,
000* 20,
000* f 8,
000
i
12,
000 100,
000*
Ret
ainedear
nings
December31 $190,
000 $ 90,
000 $190,
000
BalanceSheet
Cas h $ 5,
500 $ 15,
000 $ 20,
500
Acc ountsrecei
vabl
e 26,
000 20,
000 j 5,
000 41,
000
Inventori
es 80,
000 60,
000 c
16,
000 124,
000
Otherc urr
e ntas
sets 100,
000 5,
000 105,
000
Land 160,
000 30,
000 190,
000
Planta ndequipment 268,
000 420,
000 688,
000
Investment— Sa m bonds 92,
500 e92,
500
Investment— Sa ms t
ock 282,
000 b12,
000 f
42,000
d 8,000h260,
000
Goodwi
ll h75,
000 75,
000
$1,
014,
000 $550,
000 $1,
243,
500
Accountspayable $ 24,
000 $ 15,
000 j 5,000 $ 34,
000
10% bondspa yabl
e 100,000 e100,
000
Otherli
abil
it
ies 100,
000 45,000 145,
000
Capit
alstock 700,
000 200,000 h200,
000 700,
000
10% prefer
redstock 100,000 g100,
000
Retai
nede ar
nings 190,
000 90,
000 190,
000
$1,
014,
000 $550,
000
Nonc
ont
rol
li
ngi
nter
est— common(begi
nning) d 2,
000h65,000
Nonc
ont
rol
li
ngi
nter
est— pr
efer
red(
beginni
ng) g100,000
Nonc
ont
rol
li
ngi
nter
estDecember31 i
11,500 174,
500
$ 1,
243,
500