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 rating: 100% (QA)

Answer a Consolidated Retained Earnings on December 31 2021 1 Equity Method Consolidated retained earnings Parents retained earnings Subsidiarys retai... View the full answer