If Errant used the equity method to account for its investment in Grub and had net income of $160,000 from its own operations (before making any entries to reflect its investment in Grub) and paid no dividends in 2018, what amount of consolidated retained earnings would appear on Errant's consolidated balance sheet as at December 31, 2018?
A) $60,000.
B) $130,000.
C) $160,000.
D)$300,000.

Question

Quizplus · Accepted Answer

Since Errant used the equity method for Grub, the net income from Grub would have been added to Errant's net income. However, since Grub did not declare any dividends, Errant would not have recorded any dividend income. Therefore, the consolidated retained earnings on Errant's balance sheet would reflect only Errant's own net income of $160,000, resulting in consolidated retained earnings of $300,000 ($160,000 + $140,000).

If Errant Used the Equity Method to Account for Its