On January 1,20X9,Princeton Company Acquired 80 Percent of the Common

question 4

Multiple Choice

On January 1,20X9,Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company,for $400,000 and $60,000,respectively.At the time of acquisition,the fair value of the common shares of Stanford Company held by the noncontrolling interest was $100,000.Stanford Company's balance sheet contained the following balances:
Preferred Stock ($5 par value) $ 100,000
Common Stock ($10 par value) 200,000
Retained Earnings 300,000
Total Stockholders' Equity $ 600,000
For the year ended December 31,20X9,Stanford Company reported net income of $100,000 and paid dividends of $40,000.The preferred stock is cumulative and pays an annual dividend of 10 percent.
-Based on the preceding information,what will be the equity method income reported by Princeton Company from its investment in Stanford Company during 20X9?

• A)$32,000
• B)$30,000
• C)$72,000
• D)$48,000

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Definitions:

Scorched Earth Policy

A defensive strategy used by companies to avoid hostile takeovers by making themselves less attractive to the acquirer.

Crown Jewels

Historically significant pieces of regalia, including crowns, sceptres, orbs, and other ornaments, used at the coronation of a monarch and representing royal authority.

Takeover Defense

Strategies employed by a target company to prevent or discourage unwanted acquisition attempts.

Unused Net Operating Losses

Tax deductions that occur when a company's allowable tax deductions are greater than its taxable income within a tax period, which can be carried over to reduce taxable income in future years.