Phips Co.purchases 100 percent of Sips Company on January 1,20X2,when Phips' retained earnings balance is $320,000 and Sips' is $120,000.During 20X2,Sips reports $20,000 of net income and declares $8,000 of dividends.Phips reports $125,000 of separate operating earnings plus $20,000 of equity-method income from its 100 percent interest in Sips;Phips declares dividends of $35,000.
-Based on the preceding information,what is Phips' post-closing retained earnings balance on December 31,20X2?
A)$305,000
B)$410,000
C)$430,000
D)$465,000

Question

Quizplus · Accepted Answer

To calculate Phips' post-closing retained earnings balance on December 31,20X2, we need to consider the following:

1. Phips' initial retained earnings balance on January 1, 20X2: $320,000.
2. Sips' net income during 20X2: $20,000.
3. Sips' dividends declared during 20X2: $8,000.
4. Phips' separate operating earnings during 20X2: $125,000.
5. Phips' equity-method income from its 100% interest in Sips during 20X2: $20,000.
6. Phips' dividends declared during 20X2: $35,000.

Using these figures, we can calculate Phips' post-closing retained earnings balance as follows:

Retained earnings balance at the beginning of the year: $320,000
Add: Phips' separate operating earnings: $125,000
Add: Phips' equity-method income from Sips: $20,000
Add: Sips' net income: $20,000
Subtotal: $485,000
Less: Phips' dividends declared: ($35,000)
Less: Sips' dividends declared: ($8,000)
Total: $442,000

Therefore, Phips' post-closing retained earnings balance on December 31, 20X2, is $430,000 (Choice C).

Phips CoPurchases 100 Percent of Sips Company on January 1,20X2,when Phips