Page Company Purchased an 80% Interest in the Common Stock

question 27

Multiple Choice

Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 2019, when Seed Company had the following stockholders' equity:
$$\begin{array} { l r } \text { Common stock, } \$ 10 \text { par } & \$ 300,000 \\\text { Cumulative preferred stock, } 10 \% , \$ 10 \text { par } & 100,000 \\\text { Paid-in excess of par, common } & 50,000 \\\text { Retained earnings } & 200,000\end{array}$$ Any excess of cost over book value on the common stock purchase was attributed to goodwill.Page does not hold any of Seed's preferred stock.Seed had net income of $40,000 during 2019 and paid no dividends.

The preferred stock is two years in arrears on January 1, 2019.The controlling interest's share of Seed's 2019 net income is ____.

• A)$24,000
• B)$23,360
• C)$25,600
• D)$32,000

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Definitions:

Partnership

An unincorporated business form consisting of two or more persons conducting business as co-owners for profit.

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders; it has its own rights, privileges, and liabilities independent of its shareholders.

American Red Cross

A humanitarian organization that provides emergency assistance, disaster relief, and education inside the United States.

Accounting Records

Documents and books that keep track of all financial transactions of an entity.