Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method,
Question:
Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2018, consolidated balance sheet?
a. $250,000
b. $286,000
c. $315,000
d. $360,000
On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star's net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Star's financial records by $80,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows:
..............................................................................Pride............Star
2018 Revenues. . . . . . . . . . . . . . . . . . . . . . .$498,000.. $285,000
2018 Expenses. . . . . . . . . . . . . . . . . . . . . . . . 350,000.... 195,000
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Fundamentals of Advanced Accounting
ISBN: 978-1259722639
7th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik