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Errant Inc

question 36

Multiple Choice

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. The amount of Retained Earnings appearing on the Consolidated Balance Sheet as at January 1, 2012 would be:

Definitions:

Law of Effect

A psychological principle stating that behaviors followed by satisfying consequences tend to be repeated, while those followed by unpleasant consequences are less likely to be repeated.

Tone

The quality or character of sound.

Shock

A sudden and often intense disturbance of the mind, emotions, or sensibility due to a traumatic event or unexpected news.

Informational Value

The usefulness or relevance of data or information in decision-making or problem-solving processes.