On January 1, 2018, 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. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, $10 par value (50,000 shares outstanding)$500,000 Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding 300,000 Additional paid in capital 200,000 Retained earnings 500,000 Total stockholders' equity$1,500,000 ?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 noncontrolling interest in consolidated income.
C. The noncontrolling interest in consolidated net income is $30,800.
D. The preferred stock dividend will be ignored in noncontrolling interest in consolidated net income because Nichols owns the noncontrolling interest of preferred stock.
E. The noncontrolling interest in consolidated net income is $27,200.
Answer: E
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