Question
In: Accounting
Herbert, Inc. acquired all of Rambis Company’s outstanding stock on January 1, 2017 for $ 574,000...
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 income of $ 40,000 in 2017 and $ 50,000 in 2018 and paid $ 10,000 in dividends each year. Rambis reported net income of $ 20,000 in 2017 and $ 30,000 in 2018 and paid $ 5,000 in dividends each year.
Assume that Herbert’s internal income figures above do not include any income from the subsidiary. The parent uses the equity method.
A. What is the amount reported as consolidated Retained Earnings on December 31, 2017?
B. What is the amount reported as consolidated Retained Earnings on December 31, 2018?
C. What is the Investment in Rambis account balance on Herbert’s books on January 1, 2017 when the parent uses the equity method?
D. What is the Investment in Rambis account balance on Herbert’s books on January 1, 2018 when the parent uses the equity method?
SHOW YOUR WORK IN COMPUTING THE ABOVE
Solutions
Expert Solution
| a) | Consolidated Retained Earnings - Equity Method | |||||
| $ | ||||||
| Herbert (parent) balanace as on 1/1/2017 | 400000 | |||||
| Herbert income 2017 | 40000 | |||||
| Herbert's dividend 2017 | -10000 | |||||
| (intercompany dividends to subsidiary are eliminated) | ||||||
| Rambis income 2017 (not including parents income) | 20000 | |||||
| Amortization 2017 | -12000 | |||||
| Consolidated Retained Earnings 31/12/2017 | 438000 | |||||
| b) | Computation of Consolidated Retained Earnings 31/12/2018 | |||||
| Consolidated Retained Earnings 1/1/2018 | 438000 | |||||
| Herbert income 2018 | 50000 | |||||
| Herbert dividend of 2018 | -10000 | |||||
| Rambis income 2018 | 30000 | |||||
| Amortization 2018 | -12000 | |||||
| Consolidated Retained Earnings 31/12/2018 | 1372000 | |||||
| c &d) | Investment in Rambis - Equity Method | |||||
| Rambis fair value 1/1/2017 | 574000 | |||||
| Rambis income 2017 | 20000 | |||||
| Rambis dividends 2017 | -5000 | |||||
| Herbert's 2012 excess fail over book value amortization | -12000 | |||||
| Investment 1/1/2018 | 577000 | |||||
ekkarill92 answered 1 year agoRelated Solutions
Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $574,000 in...
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
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Herbert, Inc., acquired all of Rambis Company’s outstanding
stock on January 1, 2014, 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 2014 and $50,000 in 2015 and declared
$10,000 in dividends each year. Rambis reported net income of
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net income of $56,500 in 2017 and $73,100 in 2018 and declared
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and Rambis reported a $252,000 balance. Herbert reported internal
net income of $40,500 in 2017 and $52,300 in 2018 and declared
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Herbert, Inc., acquired all of Rambis Company’s outstanding
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amortization of $17,000 results from this transaction. On the date
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and Rambis reported a $220,000 balance. Herbert reported internal
net income of $41,000 in 2017 and $55,600 in 2018 and declared
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Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $599,000 in...
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stock on January 1, 2017, for $599,000 in cash. Annual excess
amortization of $17,000 results from this transaction. On the date
of the takeover, Herbert reported retained earnings of $486,000,
and Rambis reported a $220,000 balance. Herbert reported internal
net income of $41,000 in 2017 and $55,600 in 2018 and declared
$10,000 in dividends each year. Rambis reported net income of
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stock on January 1, 2017, for $595,000 in cash. Annual excess
amortization of $16,000 results from this transaction. On the date
of the takeover, Herbert reported retained earnings of $402,000,
and Rambis reported a $229,000 balance. Herbert reported internal
net income of $51,000 in 2017 and $64,500 in 2018 and declared
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stock on January 1, 2017, for $589,000 in cash. Annual excess
amortization of $16,700 results from this transaction. On the date
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and Rambis reported a $240,000 balance. Herbert reported internal
net income of $46,500 in 2017 and $58,500 in 2018 and declared
$10,000 in dividends each year. Rambis reported net income of
$27,400 in 2017 and $39,400 in 2018 and declared $5,000 in...
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stock on January 1, 2017, for $590,000 in cash. Annual excess
amortization of $15,100 results from this transaction. On the date
of the takeover, Herbert reported retained earnings of $428,000,
and Rambis reported a $260,000 balance. Herbert reported internal
net income of $59,250 in 2017 and $76,150 in 2018 and declared
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