Question:
On January 1, 20X9, Company A acquired 80 % of the common stock and 60 % of the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Company B held by the no controlling interest was $100,000. Company B's balance sheet contained the subsequent balances:
Preferred Stock ($5 par value) $100,000
Common Stock ($10 par value) 200,000
Retained Earnings 300,000
Total Stockholders' Equity $600,000
For the year ended December 31, 20X9, Company B reported total income of $100,000 and paid dividends of $40,000. The preferred stock is pays and cumulative an annual dividend of 10 %.
1. Based on the preceding information, what will the equity method income reported by Company A from its investment in Company B during 20X9?
A. $32,000
B. $30,000
C. $72,000
D. $48,000
2. Based on the preceding information, the eliminating entry to write the consolidated financial statements for Company A as of December 31, 20X9 can include a credit to Investment in Company B-Common Stock for:
A. 506,000
B. 440,000
C. 400,000
D. 500,000
3. Based on the preceding information, the eliminating entry to organize the consolidated financial statements for Company A as of December 31, 20X9 will include a credit to noncontrolling interest in net income of Company B for:
A. 140,000
B. 154,000
C. 152,000
D. 150,000