A Parent Acquires 70% of a Subsidiary's Common Stock and 60

question 49

Multiple Choice

A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock is noncumulative. The current year's dividend was paid. 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 and their relative par values.
• B) There is no allocation to the non-controlling interest because there are no dividends in arrears.
• C) Income is assigned as 40 percent of the preferred stock dividends.
• D) Income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends.
• E) Income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends.

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Definitions:

Furnace

A device used for high-temperature heating, usually powered by fuel, electricity, or induction, and utilized in processes such as metal casting, forging, and glass manufacturing.

Van

A type of vehicle used for transporting goods or people, typically larger than a common car but smaller than a truck.

Lump-sum Purchase

The acquisition of an asset or multiple assets in a single transaction for a single amount, instead of making payments over time.

Straight-line Method

A method of calculating depreciation and amortization by evenly distributing the cost of an asset over its useful life.