A Parent Acquires 70% of a Subsidiary's Common Stock and 60

question 98

Multiple Choice

A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock.The preferred stock is noncumulative.The current year's dividend was paid.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 and their relative par values.
• B) There is no allocation to the noncontrolling interest because there are no dividends in arrears.
• 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 preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends.
• E) The noncontrolling interest in consolidated net income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends.

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Definitions:

Revenue Journal

A specialized accounting journal used to record all sales transactions of a business, tracking the inflow of revenue.

Adjusting Journal Entries

Entries made in accounting records at the end of an accounting period to allocate income and expenditures to the correct period.

Special Journal

A specialized accounting journal designated for the recording of specific types of transactions, such as sales or purchases, to increase efficiency and organization.

General Journal

A primary accounting record used for recording all types of financial transactions, providing a chronological record of all business activities.