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Herbert, Inc., acquired all of Rambis Companys outstanding stock on January 1, 2017, for $642,000 in cash. Annual excess amortization of $11,200 results from this

Herbert, Inc., acquired all of Rambis Companys outstanding stock on January 1, 2017, for $642,000 in cash. Annual excess amortization of $11,200 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $497,000, and Rambis reported a $280,000 balance. Herbert reported internal net income of $54,750 in 2017 and $68,650 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $21,300 in 2017 and $35,200 in 2018 and declared $5,000 in dividends each year.

a. Assume that Herberts internal net income figures above do not include any income from the subsidiary.

  • If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2018?
  • What would be the amount of consolidated retained earnings on December 31, 2018, if the parent had applied either the initial value or partial equity method for internal accounting purposes?
  • b. Under each of the following situations, what is the Investment in Rambis account balance on Herberts books on January 1, 2018?

  • The parent uses the equity method.
  • The parent uses the partial equity method.
  • The parent uses the initial value method.
  • c. Under each of the following situations, what is Entry *C on a 2018 consolidation worksheet?

  • The parent uses the equity method.
  • The parent uses the partial equity method.
  • The parent uses the initial value method.

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