A parent acquires all of a subsidiary\'s common stock and 60 percent of its pref

Question

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 non-controlling interest in the subsidiary's net income assigned?

Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends. Income is assigned as 40 percent of the preferred stock dividends. Income is assigned as 40 percent of the subsidiary's income before preferred stock dividends. Income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock. There is no allocation to the non-controlling interest because the parent owns 100% of the common stock and net income belongs to the residual owners.

Explanation / Answer

Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

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