On January 1,2004,Plimsol Company Acquired 100 Percent of Shipping Corporation's

question 27

Multiple Choice

On January 1,2004,Plimsol Company acquired 100 percent of Shipping Corporation's voting shares,at underlying book value.Plimsol uses the cost method in accounting for its investment in Shipping.Shipping's retained earnings was $75,000 on the date of acquisition.On December 31,2004,the trial balance data for the two companies are as follows:

-Based on the information provided,what amount of retained earnings will be reported in the consolidated balance sheet prepared on December 31,2004?

• A)$235,000
• B)$210,000
• C)$310,000
• D)$225,000

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Definitions:

Net Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profitability from operations.

Minimum Required Return

The minimum return that investors expect to earn from their investment.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials.

Materials Price Variance

The difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased.