A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the noncontrolling interest in the subsidiary's net income assigned?
A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock.
B) There is no allocation to the noncontrolling interest because the parent owns 100% of the common stock and net income belongs to the controlling interest.
C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends.
D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income before preferred stock dividends.
E) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

Question

Quizplus · Accepted Answer

The noncontrolling interest is assigned 40 percent of the preferred stock dividends because the parent owns 60 percent of the preferred stock, leaving 40 percent to the noncontrolling interest.

A Parent Acquires All of a Subsidiary's Common Stock and 60