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

question 22

Multiple Choice

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

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Definitions:

Net Present Value

The divergence of cash inflows’ current worth from cash outflows’ present value during a defined duration.

Discount Rate

The interest rate used to discount future cash flows of a financial instrument to present value, reflecting the time value of money and investment risk.

Net Present Value

A calculation used to determine the value of an investment by discounting future cash flows to their present value to assess its profitability.

Working Capital

The variation between an organization's immediate assets and its immediate debts, reflecting its short-term fiscal stability and efficiency in operations.