Recognized by the parent parents proportionate share

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Unformatted text preview: he stock of Shove Company at an amount equal to its book value. During 20X1, Shove reports net income of $25,000, while Push reports net income of $125,000, including equity-method income from Shove of $25,000. Consolidated Net Income for 20X1 is computed as follows: 2-18 Consolidated Retained Earnings + Parent’s Retained Earnings from its own operations (excluding any income from consolidated sub. recognized by the parent) + Parent’s proportionate share of the net income of each sub., since acquisition date (adjusted for differential write-off & goodwill impairment) = CONSOLIDATED RETAINED EARNINGS 2-19 Consolidated Retained Earnings: Example On the date of combination, Push’s RE balance is $400,000, and Shove’s is $250,000. During 2011, Shove reports $25,000 of net income and declares $10,000 of dividends. Push reports $100,000 of separate operating earnings plus $25,000 of income from its 100% interest in Shove; Push declares dividends of $30,000. Consolidated RE????? 2-20 Example: Consolidation Process Peerless Products Corp. purchases all of the common stock of Special Foods Inc. on January 1, 20X1 for $300,000, an amount equal to the fair value of Special Foods as a whole. At that time, Special Foods has $200,000of common stock outstanding and retained earnings of $100,000. 2-21 Initial Year of Ownership: Parent Company Entries 2-22 Initial Year of Ownership: Elimination Entries 2-23 2-24 Second & Subsequent Years of Ownership: Parent Company Entries 2-25 Second & Subsequent Years of Ownership: Elimination Entries 2-26 2-27 Consolidated Net Income & Retained Earnings 2-28 Clarification The consolidated statement amounts are identical whether the parent uses the cost method or the equity method—this holds true for all three statements. Equity Method Consolidated Statements = Cost Method Consolidated Statements 2-29...
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