Parent Co.purchases 100 percent of Son Company on January 1,20X1,when Parent's retained earnings balance is $520,000 and Son's is $150,000.During 20X1,Son reports $15,000 of net income and declares $6,000 of dividends.Parent reports $105,000 of separate operating earnings plus $15,000 of equity-method income from its 100 percent interest in Son;Parent declares dividends of $40,000.
-Based on the preceding information,what is the consolidated retained earnings balance on December 31,20X1?
A)$470,000
B)$585,000
C)$600,000
D)$759,000

Question

Quizplus · Accepted Answer

To calculate the consolidated retained earnings balance on December 31, 20X1, we need to add Parent's and Son's individual retained earnings, adjust for the equity-method income, and subtract dividends declared by both companies.

Parent's retained earnings balance at the beginning of the year: $520,000 
Son's retained earnings balance at the beginning of the year: $150,000

Son's net income: $15,000 
Son's dividends declared: $6,000 
Parent's separate operating earnings: $105,000 
Parent's equity-method income from Son: $15,000 
Parent's dividends declared: $40,000

Consolidated retained earnings balance on December 31, 20X1: 
= Parent's retained earnings balance + Son's retained earnings balance + Parent's equity-method income from Son - Dividends declared by both companies 
= $520,000 + $150,000 + $15,000 - ($6,000 + $40,000) 
= $600,000

Therefore, the correct answer is C) $600,000.

Parent CoPurchases 100 Percent of Son Company on January 1,20X1,when Parent's