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Chapter 3 Exercise 1 4 ( revised ) Herbert, Inc. acquired all of Rambis Company s outstanding stock on January 1 , 2 0 2
Chapter Exercise revised
Herbert, Inc. acquired all of Rambis Companys outstanding stock on January for $ in cash. Annual excess amortization of $ results from this transaction. On the date of the takeover, Herbert reported retained earnings of $ and Rambis reported a $ balance. Herbert reported internal income of $ in and $ in and paid $ in dividends each year. Rambis reported net income of $ in and $ in and paid $ in dividends each year.
Assume that Herberts 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 journal entries for Herbert Inc.
To record the acquistion transaction
Investment in Rambis Company
Cash
To record receipt of dividend
Cash
Investment in Rambis Company
To accrue the subsidiary income
Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
Equity in Subsidiary Earnings
Investment in Rambis Company
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings
Add: Net Income
Less: Dividends Paid
Retained Earnings
Note: Since the equity method is used, Herbert's net income and retained earnings includes the accrual for the
subsidiary's income. So the consolidated retained earnings will be the same as Herbert's retained earnings journal entries for Herbert Inc.
To record the acquistion transaction
Investment in Rambis Company
Cash
To record receipt of dividend
Cash
Investment in Rambis Company
To accrue the subsidiary income
Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
Equity in Subsidiary Earnings
Investment in Rambis Company
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings
Add: Net Income
Less: Dividends Paid
Retained Earnings
Note: Since the equity method is used, Herbert's net income and retained earnings includes the accrual for the
subsidiary's income. So the consolidated retained earnings will be the same as Herbert's retained earnings
B What is the amount reported as consolidated Retained Earnings on December
C What is the Investment in Rambis account balance on Herberts books on January when the parent uses the equity method?
D What is the Investment in Rambis account balance on Herberts books on January when the parent uses the equity method?
journal entries for Herbert Inc.
To record the acquistion transaction
Investment in Rambis Company
Cash
Cash
Investment in Rambis Company
To accrue the subsidiary income
Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
Equity in Subsidiary Earnings
Investment in Rambis Company
Investment in Rambis
Equity in Subsidiary Earnings
Equity in Subsidiary Earnings
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings
Add: Net Income
Less: Dividends Paid
Retained Earnings
Note: Since the equity method is used, Herbert's net income and retained earnings includes the accrual for the subsidiary's income. So the consolidated retained earnings will be the same as Herbert's retained earnings
journal entries for Herbert Inc.
To record receipt of dividend
Cash
Investment in Rambis Company
To accrue the subsidiary income
Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
Equity in Subsidiary Earnings
Investment in Rambis Company
Investment in Rambis
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings
Add: Net Income
Less: Dividends Paid
Retained Earnings
A Consolidated Retained Earnings
B Consolidated Retained Earnings
C Investment in Ramis balance
D Investment in Ramis balance
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