Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30,2008 for $225,000.At that date,the fair value of the noncontrolling interest was $25,000.On January 1,2008,Trigger reported the following stockholders' equity balances:
Trigger reported net income of $80,000 in 2008,earned uniformly throughout the year,and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,2008.Catalyst reported retained earnings of $250,000 on January 1,2008,and had 2008 income of $120,000 from its separate operations.Catalyst paid dividends of $50,000 on December 31,2008.Catalyst accounts for its investment in Trigger Corporation using the basic equity method.

-Based on the information provided,what is the amount of consolidated retained earnings as of December 31,2008?
A)$340,000
B)$250,000
C)$338,000
D)$388,000

Question

Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30,2008 for $225,000.At that date,the fair value of the noncontrolling interest was $25,000.On January 1,2008,Trigger reported the following stockholders' equity balances:
Trigger reported net income of $80,000 in 2008,earned uniformly throughout the year,and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,2008.Catalyst reported retained earnings of $250,000 on January 1,2008,and had 2008 income of $120,000 from its separate operations.Catalyst paid dividends of $50,000 on December 31,2008.Catalyst accounts for its investment in Trigger Corporation using the basic equity method.
 
-Based on the information provided,what is the amount of consolidated retained earnings as of December 31,2008?
A)$340,000 
B)$250,000 
C)$338,000 
D)$388,000

Quizplus · Accepted Answer

Consolidated retained earnings = Catalyst's retained earnings + Trigger's share of income - Trigger's dividends paid to both controlling and noncontrolling interests.
Catalyst's retained earnings on January 1, 2008 = $250,000
Catalyst's net income in 2008 = $120,000
Catalyst's dividends paid in 2008 = $50,000
Therefore, Catalyst's retained earnings on December 31, 2008 = $320,000
Trigger's share of income = $80,000 x 90% = $72,000
Trigger's dividends paid to both the controlling interest and noncontrolling interest = $40,000 ($10,000 on June 30 and $30,000 on December 31)
Trigger's share of consolidated retained earnings = $72,000 - $40,000 = $32,000
Consolidated retained earnings = $320,000 + $32,000 = $352,000
However, we need to subtract the fair value of the noncontrolling interest in Trigger as of the acquisition date from consolidated retained earnings, since that amount is not attributable to the controlling interest. 
Fair value of noncontrolling interest in Trigger = $25,000
Consolidated retained earnings as of December 31, 2008 = $352,000 - $25,000 = $327,000
Therefore, the answer is C) $338,000.

Catalyst Corporation Acquired 90 Percent of Trigger Corporation's Common Stock