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:

MPC

Stands for Marginal Propensity to Consume, which measures the portion of additional income that an individual spends on consumption.

Multiplier Value

A factor that quantifies the impact of a change in some economic activity on the rest of the economy.

MPC (Marginal Propensity to Consume)

A measure of the change in consumption resulting from a change in income; specifically, the proportion of additional income that is spent on consumption.

Multiplier

A factor by which an initial change in spending will alter total economic output by a greater amount.