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