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Herbert, Inc., acquired all of Rambis Companys outstanding stock on January 1, 2020, for $652,000 in cash. Annual excess amortization of $13,700 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $498,000, and Rambis reported a $232,000 balance. Herbert reported internal net income of $44,750 in 2020 and $58,350 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $23,300 in 2020 and $36,900 in 2021 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, 2021?
• 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?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herberts books on January 1, 2021?

• 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 2021 consolidation worksheet?

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

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, 2021?
• 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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	Amounts Consolidated retained earnings (equity method) $10,000selected answer incorrect Consolidated retained earnings (initial value method) $10,000selected answer incorrect Consolidated retained earnings (partial equity method) $613,900selected answer correct

Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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

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No	Date	Accounts	Debit	Credit
1	January 01, 2021	Retained earningsselected answer incorrect	13,200selected answer incorrect	not attempted
		Investment in Rambisselected answer incorrect	not attempted	13,200selected answer incorrect
2	January 01, 2021	Rambis incomeselected answer incorrect	23,300selected answer incorrect	not attempted
		Rabmis dividendsselected answer incorrect	-5,000selected answer incorrect	not attempted
		Amortization expenseselected answer incorrect	-13,200selected answer incorrect	not attempted
		Retained earningsselected answer incorrect	5,100selected answer incorrect	not attempted
3	January 01, 2021	Investment in Rambisselected answer correct	5,100selected answer incorrect	not attempted
		Retained earningsselected answer correct	not attempted	5,100selected answer incorrect

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