Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred shares of Stanley Company,all acquired at underlying book value on January 1,2008.At that date,the fair value of the noncontrolling interest in Stanley's common stock was equal to 25 percent of the book value of its common stock.The balance sheets of Micron and Stanley immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 2008,Stanley reports net income of $40,000 and pays no dividends.Micron reports income from its separate operations of $75,000 and pays dividends of $30,000 during 2008.

-Based on the preceding information,what is the income assigned to the noncontrolling interest in the 2008 consolidated income statement?

Question

Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred shares of Stanley Company,all acquired at underlying book value on January 1,2008.At that date,the fair value of the noncontrolling interest in Stanley's common stock was equal to 25 percent of the book value of its common stock.The balance sheets of Micron and Stanley immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 2008,Stanley reports net income of $40,000 and pays no dividends.Micron reports income from its separate operations of $75,000 and pays dividends of $30,000 during 2008.
 
-Based on the preceding information,what is the income assigned to the noncontrolling interest in the 2008 consolidated income statement?

Quizplus · Accepted Answer

To find the income assigned to the noncontrolling interest, we need to first calculate the consolidated net income for 2008.

Consolidated net income = Micron's income + (Stanley's net income x noncontrolling interest percentage)
Micron's income = $75,000
Stanley's net income = $40,000

Now, we need to calculate noncontrolling interest percentage in Stanley's net income and the preferred dividends to be paid.

Noncontrolling interest percentage in Stanley's net income = (100% - 75% - 12%) - (25% x (100% - 75%)) = 11%

Preferred dividends for 2008 = $180,000 x 12% = $21,600

Since Stanley did not pay any dividends in 2008, preferred dividends to be subtracted from consolidated net income = $0 - $21,600 = -$21,600 (negative since it is an expense)

Now, we can calculate the income assigned to the noncontrolling interest:

Income assigned to the noncontrolling interest = Consolidated net income - Preferred dividends - Income attributable to the controlling interest in Micron
= $115,400 - (-$21,600) - $56,250
= $193,250

Income assigned to the noncontrolling interest = $40,000 x 11% = $4,400

Therefore, the income assigned to the noncontrolling interest in the 2008 consolidated income statement is $11,800 (Choice C).

Micron Corporation Owns 75 Percent of the Common Shares and 60