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:

Overhead Costs Applied

Refers to indirect costs allocated to a cost object (like a project, product, or department) using a predetermined rate.

Overhead Volume Variance

A measure used in management accounting to analyze the difference between budgeted and actual overhead costs, attributable to variations in the level of production or operation.

Fixed Overhead Costs

Refer to the recurring, static expenses associated with operating a business that do not fluctuate with production levels or sales volumes.

Overhead Controllable Variance

The difference between the actual overhead costs incurred and the expected (standard) overhead costs that should have been incurred, given the level of output.