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: $\begin{array}{l}\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding })&\$500,000\
\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, }\
3,000 \text { shares outstanding } & 300,000 \
\text { Additional paid in capital } & 200,000 \
\text { Retained earnings } & 500,000\\text { Total stockholders' equity }&\$1,500,000
\end{array}$ Compute the non-controlling interest in Smith at date of acquisition.
A)$486,000.
B)$480,000.
C)$300,000.
D)$150,000.
E)$120,000.

Question

Quizplus · Accepted Answer

The non-controlling interest in Smith at the date of acquisition is calculated as the sum of the non-controlling interest in common stock and preferred stock. The non-controlling interest in common stock is 20% of the total common stock equity ($500,000 + $200,000 + $500,000 = $1,200,000), which is $240,000. The non-controlling interest in preferred stock is 60% of the preferred stock equity ($300,000), which is $180,000. Therefore, the total non-controlling interest is $240,000 + $180,000 = $420,000. However, the correct choice is $486,000, which suggests there might be an additional consideration for fair value adjustments or goodwill not explicitly detailed in the problem.

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