Question

Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2016, for $724,000 cash. Greenburg’s accounting records showed net assets on that date of $560,000, although equipment with a 10-year life was undervalued on the records by $87,500. Any recognized goodwill is considered to have an indefinite life.

Greenburg reports net income in 2016 of $108,500 and $121,000 in 2017. The subsidiary declared dividends of $20,000 in each of these two years.

Account balances for the year ending December 31, 2018, follow. Credit balances are indicated by parentheses.

	Foxx				Greenburg
Revenues	$	(996,000	)		$	(804,000	)
Cost of goods sold		124,500				201,000
Depreciation expense		366,000				359,000
Investment income		(20,000	)			0
Net income	$	(525,500	)		$	(244,000	)
Retained earnings, 1/1/18	$	(1,236,000	)		$	(328,000	)
Net income		(525,500	)			(244,000	)
Dividends declared		120,000				20,000
Retained earnings, 12/31/18	$	(1,641,500	)		$	(552,000	)
Current assets	$	391,000			$	104,000
Investment in subsidiary		724,000				0
Equipment (net)		986,000				602,000
Buildings (net)		976,000				552,000
Land		610,000				142,000
Total assets	$	3,687,000			$	1,400,000
Liabilities	$	(1,145,500	)		$	(548,000	)
Common stock		(900,000	)			(300,000	)
Retained earnings		(1,641,500	)			(552,000	)
Total liabilities and equity	$	(3,687,000	)		$	(1,400,000	)

1. Determine parent's investment income for 2018 under partial equity method and equity method.

2. What would be Foxx’s balance for retained earnings as of January 1, 2018, if each of the following methods had been in use?

• 	d. Investment Income e. Retained Earnings Initial value method $1,236,000 Partial equity method Equity method

Answer 1