Question

Rojas Co. owned 7,000 shares (70%) of the outstanding 10%, $100 par preferred stock and 60% of the outstanding common stock of Brett Co. When Brett reported net income of $780,000, what was the non-controlling interest in the subsidiary's income?

Answer 1

Non-controllable interest = $680,000
`*` 40% = $272,000

Step-by-step explanation:

As for general, preference shares do not hold any voting rights until it is specified that preference capital holds special voting rights.

Thus, the preference capital is not considered while computing non-controllable interest in subsidiary.

Therefore, only equity will be considered.

Holding in equity = 60%

Uncontrollable share = 40%

Net income for the year after preference dividend = Net income - Dividend

Preference capital = $100
`*` 10,000 = $1,000,000

Dividend = $1,000,000
`*` 10% = $100,000

Net income after preference dividend = $780,000 - $100,000 = $680,000

Thus, non-controllable interest = $680,000
`*` 40% = $272,000