Question

On January 1, 2017, Aiello Company purchased 100% of the common stock Uline Industries for $450,000. On that date, Uline had common stock of $90,000 and retained earnings of $280,000. Equipment and land were each undervalued by $25,000 on Uline’s books. There was a $10,000 overvaluation of Bonds Payable, as well a $20,000 undervaluation of inventory.

The combined consolidation entries necessary for a date of acquisition balance sheet include all of the following except:

(A) Common Stock debit, $90,000
(B) Retained Earnings credit, $280,000
(C) Equity Investment credit, $450,000
(D) No debits or credits to goodwill

Answer 1

Answer:

(B) Retained Earnings credit, $280,000

Explanation:

The following are to be considered in combined consolidation entries:

1. Common stock

2. Equipment and lands

3. Bonds payable

4. Inventory, etc

There are many accounts required in combining the consolidation entries.  

So, the retained earning would not be considered as we eliminate those account which represents only one single company  

So, retained earning represent a single company only. hence, we eliminate the retained earning amount

As we want to make consolidated so we combined the accounts accordingly. Therefore, other accounts would be considered