Question

Perkins Company acquires 90 percent of the outstanding common stock of the Butterfly Corporation as well as 55 percent of its preferred stock. How should these preferred shares be accounted for within the consolidation process? (A) Not consolidated

(B) Proportionately consolidated
(C) Fully consolidated
(D) Treated as a non-equity interest

Answer 1

The preferred shares held by Perkins Company in Butterfly Corporation should be treated as a non-equity interest within the consolidation process.

Step-by-step explanation:

The preferred shares should be treated as a non-equity interest within the consolidation process. When a company acquires less than 100% of another company's outstanding stock, a non-controlling interest (NCI) is created. The preferred shares held by Perkins Company represent a portion of this NCI and should be classified as a non-equity interest. The consolidation process will account for the NCI separately from the majority-owned portion of the company.