Question

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2017. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2017 and $68,000 in 2018, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2017 and $36,000 in 2018, and paid dividends of $10,000 in dividends each year.

If the parent’s net income reflected use of the initial value method, what were the consolidated retained earnings on December 31, 2018?

Answer 1

Under the equity technique, the parent gathers auxiliary income and amortization expense (related with the securing cost in a buy) in an indistinguishable way from in the consolidation procedure. The equity strategy parallels consolidation. Along these lines, the parent's net pay and held income every year will rise to the merged sums

	Fesler	Pickett
Retained earnings	520,000	240,000
Annual amortization	(22,000)
2012 net income	100,000	24,000
2013 net income	68,000	36,000
Dividend 2012	(25,000)	(10,000)
Dividend 2013	(25,000)	(10,000)
Net	616,000	280,000
Consolidated	896,000

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