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 noncontrolling interest in the subsidiary's net income assigned?
A) The noncontrolling interest in consolidated net 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 noncontrolling interest because there are no dividends in arrears.
C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends.
D) The noncontrolling interest in consolidated net 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) The noncontrolling interest in consolidated net income is assigned as 30% of the subsidiary's income after subtracting 60 percent of preferred stock dividends.

Question

Quizplus · Accepted Answer

The noncontrolling interest is calculated based on the percentage of ownership not held by the parent. In this case, 30% of the common stock and 40% of the preferred stock are not owned by the parent. Therefore, the noncontrolling interest is assigned 40% of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends.

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