Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2014, 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 2014 and $58,350 in 2015 and declared $10,000 in dividends each year. Rambis reported net income of $23,300 in 2014 and $36,900 in 2015 and declared $5,000 in dividends each year.
a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.
1. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2015?
2. What would be the amount of consolidated retained earnings on December 31, 2015, 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 Herbert’s books on January 1, 2015?
c. Prepare entry *C for each of the following methods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)