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:

Other Comprehensive Income

Revenues, expenses, gains, and losses that are not included in net income, but instead are recorded directly to shareholders' equity.

Property Plant

Long-term tangible assets used in the operation of a business but not expected to be consumed or converted into cash in the normal course of business.

Foreign Currency

Currency used in a country other than one's own, representing the medium of exchange for international transactions.

Exchange Differences

Financial discrepancies that arise from converting transactions made in foreign currencies into the reporting currency.