On January 1, 2013, Nichols Company Acquired 80% of Smith

question 69

Multiple Choice

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: $\begin{array}{l}\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding }) &\$500,000\\\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, }\\3,000 \text { shares outstanding } & 300,000 \\\text { Additional paid in capital } & 200,000 \\\text { Retained earnings } & 500,000\\\text { Total stockholders' equity }&\$1,500,000\end{array}$ If Smith's net income is $100,000 in the year following the acquisition,

• A)the portion allocated to the common stock (residual amount) is $92,800.
• B)$10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income.
• C)the non-controlling interest balance will be $27,200.
• D)the preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock.
• E)the non-controlling interest in subsidiary net income is $30,800.

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Definitions:

Temporal Lobe

A region of the cerebral cortex located beneath the temples, associated with processing auditory information and encoding memory.

Parietal Lobe

An area of the brain located between the frontal and occipital lobes, responsible for processing sensory information related to touch, taste, and temperature.

Wernicke's Area

A region in the brain's temporal lobe associated with the understanding of spoken language.

Temporal Lobe

A region of the cerebral cortex responsible for processing auditory information and encoding memory, located beneath the lateral fissure on both cerebral hemispheres.