Tray CoReported Current Earnings of $560,000 While Paying $56,000 in Cash

question 49

Multiple Choice

Tray Co.reported current earnings of $560,000 while paying $56,000 in cash dividends.Sparrish Co.earned $140,000 in net income and distributed $14,000 in dividends.Tray held a 70% interest in Sparrish for several years, an investment that it originally acquired by transferring consideration equal to the book value of the underlying net assets.Tray used the initial value method to account for these shares. On January 1, 2018, Sparrish acquired in the open market $70,000 of Tray's 8% bonds.The bonds had originally been issued several years ago at a price that would yield a 10% effective interest rate.On the date of the bond purchase, the book value of the bonds payable was $67,600.Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds.
What is the noncontrolling interest's share of the subsidiary's net income?

• A) $42,000.
• B) $37,800.
• C) $39,600.
• D) $40,070.
• E) $44,080.

---

Definitions:

Concrete Workers

Individuals specialized in working with concrete, mixing, forming, and finishing surfaces and structures.

Wage

The fixed regular payment, typically calculated on an hourly, daily, or piecework basis, received by an employee from an employer in exchange for work done.

Marginal Product

The marginal product is the additional output resulting from a one-unit increase in the use of a variable input, holding all other inputs constant.

Equilibrium Wage

The wage rate at which the quantity of labor demanded by employers equals the quantity of labor supplied by workers, leading to a balance without surplus or shortage.