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

question 82

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 non-controlling interest in the subsidiary's net income assigned?

• A) 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 non-controlling interest because the parent owns 100% of the common stock and net income belongs to the residual owners.
• C) Income is assigned as 40 percent of the preferred stock dividends.
• D) Income is assigned as 40 percent of the subsidiary's income before preferred stock dividends.
• E) Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

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Definitions:

Profit Objectives

Financial goals set by a company seeking to achieve a specific amount of profit over a certain period.

Target Return

A pricing strategy that sets the price point based on a predetermined return on investment or desired profit margin.

Profit Goal

A specific, quantifiable financial objective set by a business, aiming to achieve a particular level of profit within a defined period.

Pricing Objectives

Goals that a company wants to achieve through the pricing of its products, such as maximizing profit, increasing market share, or deterring competition.