Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the initial value method is used. In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?

A) Entry A.
B) Entry B.
C) Entry C.
D) Entry D.
E) Entry E.

Question

Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the initial value method is used. In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?
 
A) Entry A. 
B) Entry B. 
C) Entry C. 
D) Entry D. 
E) Entry E.

Quizplus · Accepted Answer

In the year subsequent to acquisition, the Consolidated Retained Earnings account must be adjusted for the share of Fiore's net income and dividends that Kaye did not receive in the year of acquisition. This adjustment is not required for the equity method, where only the share of net income is recorded. Therefore, Entry C must be made for consolidation purposes but not for the equity method.

Kaye Company Acquired 100% of Fiore Company on January 1