The following accounts appeared in the stand alone financial statements of P, Inc. at the

end of 2014. P acquired 100% of the common stock of S, Co. on January 1, 2014 at book

value. On the date of acquisition, S had common stock of $20,000, additional paid in capital of

$380,000, and retained earnings of $339,000. P received $24,000 in dividends during 2014

and does not own any other equity investments.

P

Investment in subsidiary 660,000

Common stock 300,000

Additional paid-in-capital 500,000

Retained earnings, 12/31/14 500,000

Dividends declared (75,000)

Equity in net loss of subsidiary (55,000)

Retained earnings at 1/1/14 380,000

Required

1. Is P using the cost or equity method to account for its investment in S?

2. Compute consolidated net income.

3. How much income did P, Inc. earn from its own independent operations?

4. Compute consolidated retained earnings at 12/31/14.

5. What are consolidated dividends?

6. Compute retained earnings at 12/31/14 for S, Inc.

7. What was the amount of difference between book value and the value implied

by the purchase price at acquisition?