Chapter 3 Exercise 15 (revised) Herbert, Inc. acquired all of Rambis Company’s o

Question

Chapter 3 Exercise 15 (revised)

Herbert, Inc. acquired all of Rambis Company’s outstanding stock on January 1, 2014 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 income of $ 40,000 in 2014 and $ 50,000 in 2015 and paid $ 10,000 in dividends each year. Rambis reported net income of $ 20,000 in 2014 and $ 30,000 in 2015 and paid $ 5,000 in dividends each year.

Assume that Herbert’s internal income figures above do not include any income from the subsidiary. The parent uses the equity method.

A. What is the amount reported as consolidated Retained Earnings on December 31, 2014?

B. What is the amount reported as consolidated Retained Earnings on December 31, 2015?

C. What is the Investment in Rambis account balance on Herbert’s books on January 1, 2014 when the parent uses the equity method?

D. What is the Investment in Rambis account balance on Herbert’s books on January 1, 2015 when the parent uses the equity method?

   SHOW YOUR WORK IN COMPUTING THE ABOVE

Is the asnwer posted below correct? Please show work and how u got the answer.

Explanation / Answer

A and B. What is the amount reported as consolidated Retained Earnings on December 31, 2014 and December 31, 2015?

C and D

Herbert (parent) balance—1/1/14 .       400,000 Herbert income—2014 .        40,000 Herbert dividends—2014 (subsidiary dividends areintra-entity and, thus, eliminated)       (10,000) Rambis income—2014 (not included in parent's income)        20,000 Amortization—2014       (12,000) Consolidated retained earnings, 12/31/14       438,000 Consolidated retained earnings, 1/1/15       438,000 Herbert income—2015        50,000 Herbert dividends—2015 ..       (10,000) Rambis income—2015        30,000 Amortization—2015       (12,000) Consolidated retained earnings, 12/31/15       496,000

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