Errant Inc Assume That Any Difference Between the Fair Values and Book

question 10

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:
$\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ 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.
Assuming that Errant uses the cost method, what would be the journal entry to record the dividends received by Errant during the year?
A.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \mathbf { \$ 9 , 0 0 0 } & \\\hline \text { Investrnent in Grub } & & \mathbf { \$ 9 , 0 0 0 }\\\hline\end{array}$$
B.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 9,000 &\\\hline \text { Dividend Income } & & \$ 9,000 \\\hline\end{array}$$
C.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \mathbf { \$ 9 , 0 0 0 } & \\\hline \text { Acquisition Income } & & \mathbf { \$9 , 0 0 0 } \\\hline\end{array}$$
D.

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Definitions:

Supply Curve

A visual diagram that illustrates how the price of a product correlates with the amount of the product that sellers are prepared to sell at various price levels.

Human Resource

A department within organizations focused on employee recruitment, management, and providing direction for the people who work in the institution.

Physical Resources

Physical resources refer to tangible assets and materials used in the production of goods and services, such as machinery, buildings, and raw materials.

Human Resources

The department within an organization that deals with the recruitment, management, and guidance of its employees.