Company S has the following stockholders’ equity on January 1, 20X5:

Common stock, $1 par, 100,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 6% Preferred stock, $100 par, 2,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 The preferred stock is cumulative and has dividends one year in arrears on January 1, 20X1.

Company P purchased an 80% interest in the common stock of Company S on January 1, 20X5, for $1,400,000. Any excess of cost over book value was attributed to goodwill. Company S earned $80,000 during 20X5 and paid no dividends. Company P had internally generated net income of $120,000.

What is consolidated net income for 20X5, and how is it distributed to the controlling and noncontrolling interests?

How would the answer differ if Company P also purchases one-half of the preferred stock of Company S for $120,000?

AppendixLO1