The Following Information Pertains to Questions

question 22

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.
-The amount of retained earnings appearing on Errant's Consolidated Balance Sheet as at December 31,2007 would be

• A)$130,000
• B)$160,000
• C)$60,000
• D)$300,000

Distinguish between multiple-step and single-step income statements and their presentation of expenses.

Understand the periodic inventory system and how it records transactions.

Calculate cost of goods sold under a periodic inventory system.

Identify various discounts and allowances in merchandising accounting.

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Definitions:

Closing

A meeting attended by a buyer, seller, attorneys, and a representative of a lending institution for the official sale of a property.

Semimonthly

Refers to something happening twice a month or every half month, typically resulting in 24 occurrences in a year.

Paychecks

Regular payments made by employers to employees for the work they have performed, often on a weekly or bi-weekly basis.

Finance Charge

A fee charged for the use of credit or the extension of existing credit, often expressed as an annual percentage rate.