Problem: Quill Corporation acquired 70 percent of North Company's stock on January 1, 20X9, for $105,000. At that date, the fair value of the non-controlling interest was equal to 30 percent of the book value of North Company. The companies reported the following stockholders' equity balances immediately after the acquisition:
Quill Corporation North Corporation
Common Stock $120,000 $ 30,000
Additional Paid-In Capital 230,000 80,000
Retained Earnings 290,000 40,000
Total $640,000 $150,000
Quill and North reported 20X9 operating incomes of $90,000 and $35,000 and dividend payments of $30,000 and $10,000, respectively.
REQUIRED:
Question 1: Compute the amount reported as net income by each company for 20X9, assuming Quill uses equity-method accounting for its investment in North.
Question 2: Compute consolidated net income for 20X9.
Question 3: Compute the reported balance in retained earnings at December 31, 20X9, for both companies.
Question 4: Compute consolidated retained earnings at December 31, 20X9.
Question 5; How would the computation of consolidated retained earnings at December 31, 20X9, change if Quill uses the cost method in accounting for its investment in North?