The Following Information Pertains to Questions

question 58

Multiple Choice

The following information pertains to questions
Errant Inc purchased 100% of the outstanding voting shares of Grub Inc.for $200,000 on January 1,2004.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 31,2007 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 31,2007 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 the net income reported on Errant's Consolidated Income Statement on December 31,2007? Assume that Errant's income for the year does not include any income from Grub.

• A)$90,000
• B)$250,000
• C)$160,000
• D)$230,000

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Definitions:

Discount Period

The time frame during which a payment can be made at a reduced rate, often related to invoice payments.

Credit Terms

The conditions under which credit will be extended to a customer, including the repayment period and any interest charges.

Merchandise

Goods that a company buys for resale to customers, encompassing a wide range of items sold by retailers.

Normal Credit Balance

The expected balance on the credit side of an account, indicating an increase in liabilities, revenue, or equity.