Income and Retained Earnings
Quill Corporation acquired 70 percent of North Company’s stock on January 1, 20X9, for $105,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of North Company. The companies reported the following stockholders’ equity balances immediately after the acquisition:
| Quill Corporation | North Company |
Common Stock | $120,000 | $ 30,000 |
Additional Paid-in Capital | 230,000 | 80,000 |
Retained Earnings | 290,000 | 40,000 |
Total | $640,000 | $150,000 |
Quill and North reported 20X9 operating incomes of $90,000 and $35,000 and dividend payments of $30,000 and $10,000, respectively.
Required
a. Compute the amount reported as net income by each company for 20X9, assuming Quill uses equity-method accounting for its investment in North.
b. Compute consolidated net income for 20X9.
c. Compute the reported balance in retained earnings at December 31, 20X9, for both companies.
d. Compute consolidated retained earnings at December 31, 20X9.
e. How would the computation of consolidated retained earnings at December 31, 20X9, change if Quill uses the cost method in accounting for its investment in North?
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