Choose the correct.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 Star2018 Revenues. . . $498,000 $285,0002018 Expenses. . . 350,000 195,000Assuming 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. $250,000b. $286,000c. $315,000d. $360,000
Choose the correct.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
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
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
a. $250,000
b. $286,000
c. $315,000
d. $360,000
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