Reference no: EM132744017

Question - Peach Inc. acquired control of Strawberry Ltd. by an acquisition on January 1, 2017, when Peach acquired 75% of the common shares and 60% of the preferred shares of Strawberry Ltd., paying $3,900,000 for the common shares and $650,000 for the preferred shares. On that date, Strawberry had the following balances in its shareholders' equity accounts:

Preferred shares $1,000,000

Common shares 3,000,000

Retained earnings 2,000,000

Total $6,000,000

The preferred shares pay a cumulative dividend of 6% and have a call premium of 5%. Dividends on the preferred shares for 2016 had not yet been declared on January 1, 2017. All earlier dividends had been paid. The fair values of all of Strawberry's assets and liabilities approximated their carrying values and the entire acquisition differential was allocated to goodwill.

During 2017, Strawberry Ltd. reported net income of $400,000 and declared and paid dividends of $120,000 on the preferred shares and $200,000 on the common shares. Peach accounts for its investment in Strawberry using the cost method and values the non-controlling interest in its subsidiary's common shares based on the fair value of the company on the acquisition date (fair value enterprise method). Peach Inc. reported net income of $1,000,000 and paid dividends of $500,000 for the year. Peach Inc. has included only the current year's dividend on the preferred shares to income. The receipt of the arrears was correctly credited to its Investment in Illustrious Inc. account.

Required - Calculate the following balances that would appear in the consolidated financial statements of Peach Inc. as at December 31, 2017, and for the year ended on that date:

a) non-controlling interest in subsidiary;

b) consolidated net income;

c) non-controlling interest in consolidated net income;

d) contributed surplus from acquisition of the subsidiary's preferred shares.