Question
Equity method and consolidations Assume that a parent company acquired 80% of the outstanding voting common stock of a subsidiary on January 1, 2018. On
Equity method and consolidations
Assume that a parent company acquired 80% of the outstanding voting common stock of a subsidiary on January 1, 2018. On the acquisition date, the identifiable net assets of the subsidiary had fair values that approximated their recorded book values except for a patent, which had a fair value of $200,000 and no recorded book value. On the date of acquisition, the patent had five years of remaining useful life and the parent company amortizes its intangible assets using straight line amortization. During the year ended December 31, 2019, the subsidiary recorded sales to the parent in the amount of $240,000. On these sales, the subsidiary recorded pre-consolidation gross profits equal to 25%. Approximately 30% of this merchandise remains in the parents inventory at December 31, 2019. The following summarized pre-consolidation financial statements are for the parent and the subsidiary for the year ended December 31, 2019:
Investor | Investee | |
---|---|---|
Income statement: | ||
Revenues | $4,800,000 | $800,000 |
Income from Investee | 209,600 | 0 |
Expenses | (3,200,000) | (480,000) |
Net income | $1,809,600 | $320,000 |
Retained earnings statement: | ||
BOY retained earnings | $1,488,000 | $80,000 |
Net income | 1,809,600 | 320,000 |
Dividends declared | (128,000) | (80,000) |
EOY retained earnings | $3,169,600 | $320,000 |
Balance sheet: | ||
Current assets | $1,600,000 | $200,000 |
Investment in subsidiary | 465,600 | - |
Noncurrent assets | 8,000,000 | 600,000 |
Total assets | $10,065,600 | $800,000 |
Liabilities | $5,296,000 | $320,000 |
Common stock & APIC | 1,600,000 | 160,000 |
Retained earnings | 3,169,600 | 320,000 |
Total liabilities & stockholders equity | $10,065,600 | $800,000 |
Based on this information, determine the balance for Retained Earnings:
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