Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, 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 2017 and $50,000 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $20,000 in 2017 and $30,000 in 2018 and declared $5,000 in dividends each year.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, 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 2017 and $50,000 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $20,000 in 2017 and $30,000 in 2018 and declared $5,000 in dividends each year.

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Chapter13: Comparative Forms Of Doing Business

Section: Chapter Questions

Problem 48P

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Question

Assume that Herbert's internal net income figures above 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, 2018?
What would be the amount of consolidated retained earnings on December 31, 2018, if the parent had applied either the
initial value or partial equity method for internal accounting purposes?
Show lessA
Consolidated retained earnings (equity method)
496,000
Consolidated retained earnings (initial value method)
$
Consolidated retained earnings (partial equity method)
$

Definition Definition Remaining net income of the company after the required dividends are paid to shareholders. This surplus money is usually invested back into the business to expand its business operations or launch a new product.

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