Chapter 9, Problem 9.1C

To determine

Introduction: Preferred stockholders normally have a preferential right over common shareholders when dividends are distributed and the distribution of assets in liquidation. The right to vote usually is suspended from preferred shareholders. During consolidation, before eliminating the intercompany common stock ownership, it is important to determine the amount of subsidiary stockholders’ equity related to preferred shareholders. Parent’s ownership of preferred stock must be eliminated. Any portion of subsidiary preferred stock not held by the parent is assigned to non-controlling interest.

The things K’s controller need to know about preferred stock to determine the proper allocation of consolidated net income to the controlling and non-controlling interests.