A Parent Acquires All of a Subsidiary's Common Stock and 60

question 10

Multiple Choice

A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the noncontrolling interest in the subsidiary's net income assigned?

• A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock.
• B) There is no allocation to the noncontrolling interest because the parent owns 100% of the common stock and net income belongs to the controlling interest.
• C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends.
• D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income before preferred stock dividends.
• E) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

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Definitions:

Vertical Merger

A business strategy where a company merges with another company that operates in the same industry but at a different stage of the production process.

Supplier-Customer Relationships

The interactions and transactions between a provider of goods or services and the entity that purchases them.

Friendly Merger

A merger agreed upon by all parties involved, where both companies' leadership are willing participants in the negotiation process.

Target's Management

The executive and leadership team of a company that is being considered for acquisition or merger.