Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Chapter 3 Exercise 1 4 ( revised ) Herbert, Inc. acquired all of Rambis Company s outstanding stock on January 1 , 2 0 2

Chapter 3 Exercise 14(revised)
Herbert, Inc. acquired all of Rambis Companys outstanding stock on January 1,2020 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 2020 and $ 50,000 in 2021 and paid $ 10,000 in dividends each year. Rambis reported net income of $ 20,000 in 2020 and $ 30,000 in 2021 and paid $ 5,000 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 31,2020?2020 journal entries for Herbert Inc.
To record the acquistion transaction
11?20
Investment in Rambis Company
Cash
To record receipt of dividend
12/31/20 Cash
Investment in Rambis Company
To accrue the subsidiary income
12/31/20 Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
12/31/20 Equity in Subsidiary Earnings
Investment in Rambis Company
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings 1/1/20
Add: Net Income
Less: Dividends Paid
Retained Earnings 12/31/20
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 earnings2020 journal entries for Herbert Inc.
To record the acquistion transaction
11?20
Investment in Rambis Company
Cash
To record receipt of dividend
12/31/20 Cash
Investment in Rambis Company
To accrue the subsidiary income
12/31/20 Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
12/31/20 Equity in Subsidiary Earnings
Investment in Rambis Company
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings 1/1/20
Add: Net Income
Less: Dividends Paid
Retained Earnings 12/31/20
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 31,2021?
C. What is the Investment in Rambis account balance on Herberts books on January 1,2020 when the parent uses the equity method?
D. What is the Investment in Rambis account balance on Herberts books on January 1,2021 when the parent uses the equity method?15
2020 journal entries for Herbert Inc.
To record the acquistion transaction
1/1/20 Investment in Rambis Company
Cash
12/31/20 Cash
Investment in Rambis Company
To accrue the subsidiary income
12/31/20 Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
12/31/20 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 1/1/20
Add: Net Income
Less: Dividends Paid
Retained Earnings 12/31/20
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
2021 journal entries for Herbert Inc.
To record receipt of dividend
1231?18 Cash
Investment in Rambis Company
To accrue the subsidiary income
12/31/21 Investment in Rambis Company
Equity in Subsidiary Earnings
To recognize amortization on allocations
12/31/21 Equity in Subsidiary Earnings
Investment in Rambis Company
Investment in Rambis
Herbert's Internal Income
Add: Equity in Investee Income
Net Income
Retained Earnings 1/1/21
Add: Net Income
Less: Dividends Paid
Retained Earnings 12/31/21
A 2020 Consolidated Retained Earnings
B 2021 Consolidated Retained Earnings
C 2020 Investment in Ramis balance
D 2021 Investment in Ramis balance
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Excel For Accountants Tips, Tricks & Techniques

Authors: Conrad Carlberg

1st Edition

1932925015, 9781932925012

More Books

Students also viewed these Accounting questions