Reference no: EM132949779
Herbert, Inc., acquired all of Rambis Company's outstanding stock on January 1, 2020, 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 2020 and $68,650 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $21,300 in 2020 and $35,200 in 2021 and declared $5,000 in dividends each year.
Assume that Herbert's internal net income figures above do not include any income from the subsidiary.
Problem 1: If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?
Problem 2: What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes?
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