On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock. There was no differential related to this transaction. The noncontrolling interest had a fair value equal to 20 percent of book value. The book value of Siena on December 31, 20X7 was as follows:
On January 1, 20X8, Siena sold an additional 12,500 shares to a nonaffiliate for $25 per share.
-Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock.Elven,in turn,owns 15 percent of Windsor's outstanding common stock.What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement?

Question

On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock. There was no differential related to this transaction. The noncontrolling interest had a fair value equal to 20 percent of book value. The book value of Siena on December 31, 20X7 was as follows:
  On January 1, 20X8, Siena sold an additional 12,500 shares to a nonaffiliate for $25 per share.
-Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock.Elven,in turn,owns 15 percent of Windsor's outstanding common stock.What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement?

Quizplus · Accepted Answer

In a consolidated retained earnings statement, dividends declared by the parent company are reported in full, while dividends declared by the subsidiary company are adjusted for the percentage of ownership by the noncontrolling interest. In this case, since Elven Corporation owns 15 percent of Windsor's outstanding common stock, 15 percent of dividends paid by Windsor would be reported as dividends declared in the consolidated retained earnings statement. Therefore, the correct answer is C (85 percent).

On January 1, 20X7, Pisa Company Acquired 80 Percent of Siena