Reference no: EM133047221
Question - On January 1, Year 3, First Rate Corp (First) purchased 1,350 common shares of Second Opinion Ltd (Second) for $112,500. On this date, the shareholders' equity accounts of Second were as follows:
Common (ordinary) shares (1,685 shares issued and outstanding) $35,000
Preferred shares (5,500 shares issued and outstanding) $71,500
Retained earnings $80,000
The preferred shares have a $1/share dividend rate and are cumulative and non-participating with a liquidation value of $13.80 per share. The dividends were one year in arrears on January 1, Year 3.
The following information pertains to retained earnings for the two companies for Year 3:
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First
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Second
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Retained earnings, beginning of the year
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$146,000
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$80,000
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Net income
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58,000
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36,000
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Dividends declared and paid
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20,000
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18,000
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Retained earnings, end of the year
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184,000
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98,000
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Additional information:
First uses the cost method to account for its investment in Second
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