REFERENCE: Ref.06_02 Stoop Co.owned 80% of the Common Stock of Knight Co.Knight

question 94

Multiple Choice

REFERENCE: Ref.06_02
Stoop Co.owned 80% of the common stock of Knight Co.Knight had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding.Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock.Stoop did not own any of Knight's preferred stock.Knight also had 600 bonds outstanding,each of which is convertible into ten shares of common stock.Knight's annual after-tax interest expense for the bonds was $22,000.Stoop did not own any of Knight's bonds.Knight reported income of $300,000 for 2009.
-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 purchased at a price equal to the book value of the underlying net assets.Tray used the initial value method to account for these shares.
On January 1,2009,Sparrish acquired in the open market $70,000 of Tray's 8% bonds.The bonds had originally been issued several years ago at 92,reflecting a 10% effective interest rate.On the date of 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.

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Definitions:

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A general statement or concept obtained by inference from specific cases.

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Crime And Punishment

A concept referring to the legal and societal mechanisms for dealing with acts deemed harmful or unacceptable, involving the imposition of penalties.