P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $1,272,000. S Company’s December 31, 2010 balance sheet reported common stock of $800,000 and retained earnings of $540,000. During the calendar year 2011, S Company earned $840,000 evenly throughout the year and declared a dividend of $300,000 on November 1. What is the amount needed to establish reciprocity 5 under the cost method in the preparation of a consolidated work paper on December 31, 2011?

A) $432,000
B) $248,000
C) $260,000
D) $208,000

Be sure to fully explain your choice.

Answer rating: 100% (QA)

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