On January 1, 2013, Nichols Company Acquired 80% of Smith

question 85

Multiple Choice

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: If Smith's net income is $100,000 in the year following the acquisition,

• A) the portion allocated to the common stock (residual amount) is $92,800.
• B) $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income.
• C) the non-controlling interest balance will be $27,200.
• D) the preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock.
• E) the non-controlling interest in subsidiary net income is $30,800.

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