Errant Inc The Net Incomes for Errant and Grub for the Year

question 9

Short Answer

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares 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:
$\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 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, 2019 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 any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
What would be the journal entry to record the dividends received by Errant during the year?
A.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 & \\\hline \text { Investment in Grub } & & \$ 9,000 \\\hline\end{array}$$
B.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \mathbf { \$ 9 , 0 0 0 } & \\\hline \text { Equity method income } & & \mathbf { \$ 9 , 0 0 0 }\\\hline\end{array}$$
C.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \mathbf { \$ 9 } , 000 & \\\hline \text { Acquisition Differential } & &\mathbf { \$ 9 , 0 0 0 } \\\hline\end{array}$$
D.

Identify the prevalence and demographic distribution of personality disorders.

Explain treatment options for different personality disorders.

Understand the impact of childhood experiences on the development of personality disorders.

Recognize the importance of a multi-theoretical approach in treating personality disorders.

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Definitions:

Worthiness

The quality of deserving attention, respect, or esteem based on perceived merits or virtues.

Maturation

The process of development in which an individual matures or reaches full functionality and growth, often independent of learning or experience.

Concrete Operational

The concrete operational stage is the third stage in Piaget's theory of cognitive development, where children ages 7 to 11 develop logical thought but still struggle with abstract concepts.

Preoperational

A stage in Piaget's theory of cognitive development where children aged 2 to 7 years old begin to use language and think symbolically, but are not yet able to use logical reasoning.