Plum Inc Acquired 90% of the Capital Stock of Sterling Co

question 35

Multiple Choice

Plum Inc. acquired 90% of the capital stock of Sterling Co. on 1/1/X1 at a cost of $540,000. On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000.
On 1/1/X1 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share. Internally generated net income was $50,000 for Plum and $40,000 for Sterling. The noncontrolling interest in consolidated net income is

• A)$2,000
• B)$18,000
• C)$7,500
• D)$6,800

Understand the basic concepts and advantages of different capital investment analysis methods.

Calculate and interpret the average rate of return for an investment.

Identify and distinguish between present value methods and methods that ignore present value in capital investment analysis.

Compute and understand the significance of the cash payback period in investment decisions.

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Definitions:

Type T Personality

Personality type characterized by thrill-seeking behaviors, tendency to take risks, and a desire for excitement.

Type A Personality

A personality type characterized by high levels of competitiveness, self-driven behavior, a sense of urgency, and an aggressive nature.

Optimistic Explanatory Style

The tendency to attribute positive events to personal, permanent causes, and negative events to external, temporary ones, expecting good outcomes.

Pessimistic Explanatory Style

A tendency to explain negative events as having personal, permanent, and pervasive causes.