Assume an investor acquired 100% of the voting common stock of an investee on January 1, 2015 in a transaction that qualifies as a business combination. As a result of the acquisition, the investor recognized no goodwill and no bargain purchase gain in the post-acquisition consolidated financial statements (i.e., all of the resulting Acquisition Accounting Premium relates to identifiable net assets). The investor uses the equity method to account for its pre-consolidation investment in the investee. In addition, there are no intercompany transactions between the investor and investee. The following summarized pre-consolidation financial statement information is for the year ending December 31, 2022: Income Statement Investor Investee Revenues $3,013,200 $414,720 Income from investee 191,160 - Expenses (2,430,000) (210,600) Net income $774,360 $204,120 Retained Earnings Statement Investor Investee Retained earnings, January 1 $972,000 $48,600 Net Income 774,360 204,120 Dividends declared (81,000) (48,600) Retained earnings, December 31 $1,665,360 $204,120 Balance Sheet Investor Investee Investment in investee $382,320 $- All other assets 6,207,840 518,400 Total assets $6,590,160 $518,400 Liabilities $3,888,000 $200,880 Common stock & APIC 1,036,800 113,400 Retained earnings 1,665,360 204,120 Total liabilities and equity $6,590,160 $518,400 What amount of “retained earnings” will appear in the consolidated balance sheet at December 31, 2022? Select one: a. $1,678,320 b. $1,869,480 c. $1,665,360 d. $1,820,880

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter8: Investing Activities

Section: Chapter Questions

Problem 19PC

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Understanding consolidated balances

Assume an investor acquired 100% of the voting common stock of an investee on January 1, 2015 in a transaction that qualifies as a business combination. As a result of the acquisition, the investor recognized no goodwill and no bargain purchase gain in the post-acquisition consolidated financial statements (i.e., all of the resulting Acquisition Accounting Premium relates to identifiable net assets). The investor uses the equity method to account for its pre-consolidation investment in the investee. In addition, there are no intercompany transactions between the investor and investee. The following summarized pre-consolidation financial statement information is for the year ending December 31, 2022:

Income Statement	Investor	Investee
Revenues	$3,013,200	$414,720
Income from investee	191,160	-
Expenses	(2,430,000)	(210,600)
Net income	$774,360	$204,120

Retained Earnings Statement	Investor	Investee
Retained earnings, January 1	$972,000	$48,600
Net Income	774,360	204,120
Dividends declared	(81,000)	(48,600)
Retained earnings, December 31	$1,665,360	$204,120

Balance Sheet	Investor	Investee
Investment in investee	$382,320	$-
All other assets	6,207,840	518,400
Total assets	$6,590,160	$518,400
Liabilities	$3,888,000	$200,880
Common stock & APIC	1,036,800	113,400
Retained earnings	1,665,360	204,120
Total liabilities and equity	$6,590,160	$518,400

What amount of “retained earnings” will appear in the consolidated balance sheet at December 31, 2022?

Select one:

a. $1,678,320

b. $1,869,480

c. $1,665,360

d. $1,820,880

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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