Investee with preferred stock
Jack Ltd. paid $3,500,000 cash on January 1 to acquire 30 percent of William Ltd.’s outstanding common stocks.
Assume that William Ltd.’s assets and liabilities were at fair value equal to book value on this date. At the end of the period,
William Ltd. reported net income of $1,000,000. The information of William Ltd.’s shareholders’ equity on January 1 (in thousands) follows:
1 percent cumulative preferred stock, $10 par $1,000
Common stock, $10 par 3,000
Additional paid-in capital 5,000
Retained earnings 3,000
REQUIRED
1. Calculate goodwill from Jack Ltd.’s investment in William Ltd.
2. Calculate Jack Ltd.’s income from William Ltd.