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hello.
I was practicing to example 1 of mentioned chapter. I understand almost all except how the retained earnings b/f and 5 months are computed. can you explain?
thanksThere is a clear working for this in the published solution!
Normally, in an exam question, profits are deemed to have been earned evenly throughout the year unless otherwise indicated. But in this question we are specifically told that $24,000 was earned in the post acquisition period.
So, deduct that $24,000, split the remainder, then add the $24,000 to the ost acquisition share.
5 months’ profits are thus calculated and the pre-acquisition element of this year is also calculated
Add on to the pre-acquisition element the retained earnings at the start of the year and there you have the retained earnings at date of acquisition
OK?
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