Chapter 3 Exercise 14 (revised)

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?