Reference no: EM13503934

Herbert, Inc., acquired all of Rambis Company's outstanding stock on January 1, 2012, for$574,000 in cash. Annual excess amortization of $12,000 results from this transaction. On thedate 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 2012 and $50,000 in 2013and paid $10,000 in dividends each year. Rambis reported net income of $20,000 in 2012 and$30,000 in 2013 and paid $5,000 in dividends each year.

a. Assume that Herbert's internal income figures above do not include any income from thesubsidiary.

• If the parent uses the equity method, what is the amount reported as consolidated retainedearnings on December 31, 2013?
• Would the amount of consolidated retained earnings change if the parent had appliedeither 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 balanceon Herbert's books on January 1, 2013?

• 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 2013 consolidation worksheet?

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