Chapter 3 Exercise 15 (revised)

Herbert, Inc. acquired all of Rambis Companys 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 income of $ 40,000 in 2014 and $ 50,000 in 2015 and paid $ 10,000 in dividends each year. Rambis reported net income of $ 20,000 in 2014 and $ 30,000 in 2015 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, 2014?

B. What is the amount reported as consolidated Retained Earnings on December 31, 2015?

C. What is the Investment in Rambis account balance on Herberts books on January 1, 2014 when the parent uses the equity method?

D. What is the Investment in Rambis account balance on Herberts books on January 1, 2015 when the parent uses the equity method?

SHOW YOUR WORK IN COMPUTING THE ABOVE