Question

Herbert, Inc., acquired all of Rambis Company's outstanding stock on January 1, 2020, for $574,000 in cash. Annual excess amortization of $12,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $400,000, and Rambis reported a $200,000 balance. Herbert reported internal net income of $40,000 in 2020 and $50,000 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $20,000 in 2020 and $30,000 in 2021 and declared $5,000 in dividends each year. a. Assume that Herbert's internal net income figures do not include any income from the subsidiary. • If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021? • What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert's books on January 1, 2021 • The parent uses the equity method. . The parent uses the partial equity method. The parent uses the initial value method. c. Under each of the following situations, what is Entry "C on a 2021 consolidation worksheet? • The parent uses the equity method. . The parent uses the partial equity method. • The parent uses the initial value method.

Answer 1

Anni Consolidated retained earning Ermity method Amount (6) Particulares 400000 Here beret (pourtia) baranee 1/1/20 40000 Herberet income – 2020 (10000) Herbert dividendo 2020 20000 Rambin income – 2020 (not included in Parcento income) Amortization 2020 (12000) 50000 Herbert income - 2021 (10000) Herberet dividende - 2021 2021 30000 Rambin income. (12000) Amortization - 2021 con nolidated retained earning n 12/31/2021 496000

Partial equity method and initial value method are the name Consolidated retained earninga under thene method use. The beginning balance balance plus the income enn the dividend of the parent plus the income of the pubsidiary, lenn amortization expenne. Tules, 12/31/2021 consolidated retained earning are $ 496000 as computed above.ch

Inventment in Rambin Equity method Particulares Amount ($) Rombin Faire value 1/1/20 574000 Ram bin meome 2020 20000 Rambin dividando 2020 (5000) Her beret 2020 exeenn faire over book value (12000) amortization Inventment account balance // 2021 577000 Partial equity method Particulars I Amount ($ Rambin fair value 1/1/20 574000 Income 2020 Rambin 20000 Dombin dividendo 2020 (5000) Inventment account balance 1//2021 589000

Initial rame method Amount ($ Particulars Rambin faire value 1/1/2020 574000 574000 inventment account balance 1/1/21 Equity method - No Entrey Partial Equity meterod Date Account Webit ($) Credit (9) 1/1/2021 Retoined earning 12000 To muestment in Rambin 12000

Initial rame method Date Accounts Debit($) Credit C 1/1/21 Inuestment in Roumbin 3000 To retained earnings 3000 mote- (20000 -5000 - 12000) = 3000