Cost-to-equity conversion with preferred stock. On December 31, 2014, Zigler Corporation purchases an 80% interest in the common stock of Kim Company for $420,000. The stockholders’ equity of Kim Company on December 31, 2014, is as follows:
Any excess of cost over book value is attributable to goodwill. The common stock investment is accounted for under the cost method. Zigler Corporation purchases 1,000 shares of the cumulative preferred stock of Kim Company on January 1, 2015, for $90,000. Kim Company issues a total of 2,000 preferred shares on January 1, 2011. Dividends on preferred stock are paid in 2011 and 2012, but not in subsequent years. Zigler Corporation accounts for its investment using the cost method.
During 2015 and 2016, Kim Company pays no dividends, and its retained earnings balance on December 31, 2016, is $210,000. Kim Company income during 2017 is $60,000.
1. Calculate the preferred and common stockholders’ equity claim on Kim Company’s retained earnings balance at January 1, 2017.