Errant Inc

question 24

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. What would be Errant's journal entry to record Grub's Net Income for 2012?

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Definitions:

Breathing

The process of taking air into and expelling it from the lungs to facilitate gas exchange with the internal environment, mainly by bringing in oxygen and flushing out carbon dioxide.

Cerebral Spinal Fluid

A clear, colorless body fluid found in the brain and spinal cord, acting as a cushion for the brain's cortex, providing basic mechanical and immunological protection.

Shock Absorber

A mechanical device designed to absorb and dampen shock impulses in vehicles and machinery, contributing to smoother movement.

CNS

The central nervous system, consisting of the brain and spinal cord, which processes and sends out nerve signals.