Question

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $601,000 in cash. Annual excess amortization of $16,300 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $453,000, and Rambis reported a $276,000 balance. Herbert reported internal net income of $45,500 in 2020 and $61,400 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $25,300 in 2020 and $41,200 in 2021 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above 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

ANS a con solidated Retained earnings Equity method Amount Particular s. 11-1-220 Herbert baloncel parent) 453000 2020 Herbert income 45500 2020 Hexbet dividends Eliminated Subsidiary dividend 10000 sf inter compony) 2010 Ram bis income (Parent's income not include) 25300 2020. Amortization 16 300 Herbert income. 61400 Herbert dividends 10000 Rambis income 41200 А Amortization 16 300 2021 2021 202). 2021 consolidate Retained earnings 12/31/2021 (453000+4300 - 10000 +95300+16300 +61400-10000140800-16300) 5684-00

(b) investment in Rambis Equity method Amount particulars 1/1/2020 Rampis faire value. 601000 2020 Ram bis income. 25300. 5000 12020 / Rambis dividends 10300 |2020 Herbert's excess fais over book vole amogitiza hon 605000 11/2001 investment occount balance 601000725300-5000 –16300) partial equity method 601000 11/1/2020. | Rambis fair value 2010 Rambis income 25300 5000 2020 Rambis dividends //2021 investment account balance (601000 +25300-5000) 621300

initial value method 11/1/2020/ Rambis fair value 601000 investment account balance 601000 1/1/2021 C) Equity method The method is algteady applied to convert the pass figures to the equity method paordial e wity method Entgay'G': 1/1/2021/ Retained earnings. (parent) 16 300 investment in Rombis 16300 fro Record 20.20 a mogliz do in consolidated figures.) Expense wos omitted because of application of partial equity method.

initial value method been Recorded & must be bought into the Amortization for the prior year has 1 ' consolidation through wouk Sheet Entry's Entray 'C' investment in Rambis 4000 Pelained in Earnings 1/1/2021 4000 Iparent) in pscing year pambis reported net income 25300. parent has not recorded 20300 (15300-5000 income in excess of dividends. Am o rizal on expense of 16300 was not Recorded under the initial value methods