Pooley 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 1,20X8.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 Pooley and Stanley immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 20X8,Stanley reports net income of $40,000 and pays no dividends.Pooley reports income from its separate operations of $75,000 and pays dividends of $30,000 during 20X8.
-Based on the preceding information,what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement?

Question

Pooley 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 1,20X8.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 Pooley and Stanley immediately after the acquisition contained these balances:
  Stanley's preferred stock pays a 12 percent dividend and is cumulative.For 20X8,Stanley reports net income of $40,000 and pays no dividends.Pooley reports income from its separate operations of $75,000 and pays dividends of $30,000 during 20X8.
-Based on the preceding information,what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement?

Quizplus · Accepted Answer

To calculate the income assigned to the noncontrolling interest in the 20X8 consolidated income statement, we need to find the net income attributable to the noncontrolling interest.

First, we need to calculate the net income attributable to Pooley Corporation:

Pooley Corporation's income from separate operations: $75,000
Pooley Corporation's share of Stanley Company's net income: 75% x $40,000 = $30,000
Total net income attributable to Pooley Corporation: $105,000

Next, we need to calculate the preferred dividends for Stanley Company:

Preferred dividends = 12% x $100,000 = $12,000

Since Stanley Company did not pay any dividends in 20X8, $12,000 of the preferred dividends are cumulative and will be paid in the future.

Now, we can calculate the income available to be distributed to the common shareholders of Stanley Company:

Net income - preferred dividends = $40,000 - $12,000 = $28,000

Since Pooley Corporation owns 75% of the common shares and the noncontrolling interest owns 25%, the income attributable to the noncontrolling interest is:

Income attributable to noncontrolling interest = 25% x $28,000 = $7,000

Therefore, the answer is C) $11,800.

Pooley Corporation Owns 75 Percent of the Common Shares and 60