On January 1, 2009, 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:

If Smith's net income is $100,000 in the year following the acquisition,

A) the portion allocated to the common stock (residual amount) is $92,800.
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income.
C) the non-controlling interest balance will be $27,200.
D) the preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock.
E) the non-controlling interest in subsidiary net income is $30,800.

Question

On January 1, 2009, 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:

If Smith's net income is $100,000 in the year following the acquisition,

A) the portion allocated to the common stock (residual amount) is $92,800. 
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income. 
C) the non-controlling interest balance will be $27,200. 
D) the preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock. 
E) the non-controlling interest in subsidiary net income is $30,800.

Quizplus · Accepted Answer

The Answer of On January 1, 2009, 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:

If Smith's net income is $100,000 in the year following the acquisition,

A) the portion allocated to the common stock (residual amount) is $92,800. 
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income. 
C) the non-controlling interest balance will be $27,200. 
D) the preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock. 
E) the non-controlling interest in subsidiary net income is $30,800.

On January 1, 2009, Nichols Company Acquired 80% of Smith