Palace Corporation owns 80 percent of the common shares and 70 percent of the preferred shares of Surf Company, all purchased at underlying book value on January 1, 20X2. At that date, the fair value of the noncontrolling interest in Surf’s common stock was equal to 20 percent of the book value of its common stock. The balance sheets of Palace and Surf immediately after the acquisition contained these balances:

The preferred stock issued by Surf pays a 10 percent dividend and is cumulative. For 20X2, Surf reports net income of $30,000 and pays no dividends. Palace reports income from its separate operations of $100,000 and pays dividends of $40,000 during 20X2.

Required

Select the correct answer for each of the following questions.

1. Total noncontrolling interest reported in the consolidated balance sheet as of January 1, 20X2, is

a. $30,000

b. $50,000

c. $70,000

d. $80,000

2. Income assigned to the noncontrolling interest in the 20X2 consolidated income statement is

a. $6,000

b. $7,000

c. $9,000

d. $14,000

3. What amount of income is attributable to the controlling interest for 20X2?

a. $116,000

b. $123,000

c. $124,000

d. $130,0004. Total stockholders’ equity reported in the consolidated balance sheet as of January 1, 20X2, is

a. $650,000

b. $700,000

c. $730,000

d. $1,000,000

5. Preferred stock outstanding reported in the consolidated balance sheet as of January 1, 20X2, is

a. $0

b. $30,000

c. $70,000

d. $100,000

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Cash & Receivables Inventory Buildings & Equipment (net) Investment in Surf Preferred Stock Investment in Surf Common Stock Total Assets Liabilities Preferred Stock Common Stock Retained Earnings Total Liabilities & Equities Palace Corporation $150,000 200,000 250,000 70,000 200,000 $870,000 $220,000 300,000 350,000 $870,000 Surf Company $ 80,000 100,000 220,000 $400,000 $ 50,000 100,000 200,000 50,000 $400,000