Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 2019, when Seed Company had the following stockholders' equity:
$$\begin{array} { l r }
\text { Common stock, } \$ 10 \text { par } & \$ 300,000 \
\text { Cumulative preferred stock, } 10 \% , \$ 10 \text { par } & 100,000 \
\text { Paid-in excess of par, common } & 50,000 \
\text { Retained earnings } & 200,000
\end{array}$$ Any excess of cost over book value on the common stock purchase was attributed to goodwill.Page does not hold any of Seed's preferred stock.Seed had net income of $40,000 during 2019 and paid no dividends.

The preferred stock is two years in arrears on January 1, 2019.The non-controlling interest share of 2019 net income was ____.
A)$3,200
B)$6,000
C)$8,000
D)$16,000

Question

Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 2019, when Seed Company had the following stockholders' equity: 
$$\begin{array} { l r } 
\text { Common stock, } \$ 10 \text { par } & \$ 300,000 \
\text { Cumulative preferred stock, } 10 \% , \$ 10 \text { par } & 100,000 \
\text { Paid-in excess of par, common } & 50,000 \
\text { Retained earnings } & 200,000
\end{array}$$ Any excess of cost over book value on the common stock purchase was attributed to goodwill.Page does not hold any of Seed's preferred stock.Seed had net income of $40,000 during 2019 and paid no dividends.

The preferred stock is two years in arrears on January 1, 2019.The non-controlling interest share of 2019 net income was ____.
A)$3,200
B)$6,000
C)$8,000
D)$16,000

Quizplus · Accepted Answer

The non-controlling interest owns 20% of Seed Company. The net income attributable to common shareholders is $40,000 minus the preferred dividends in arrears ($10,000 per year for two years = $20,000), resulting in $20,000. The non-controlling interest share is 20% of $20,000, which is $4,000. However, since the preferred dividends were not paid, the non-controlling interest share is calculated on the full $40,000, resulting in $8,000.

Page Company Purchased an 80% Interest in the Common Stock