on january 1, 20x1, owen corp. purchased all of sharp corp.'s common stock for $1,200,000. on that date, the fair values of sharp's assets and liabilities equaled their carrying amounts of $1,320,000 and $320,000, respectively. during 20x1, sharp paid cash dividends of $20,000. selected information from the separate balance sheets and income statements of owen and sharp as of december 31, 20x1, and for the year then ended follows: owen sharp balance sheet accounts investment in subsidiary $1,300,000 --- retained earnings 1,240,000 560,000 total stockholders' equity 2,620,000 1,120,000 income statement accounts operating income 420,000 200,000 equity in earnings of sharp 120,000 --- net income 400,000 140,000 in owen's december 31, 20x1, consolidated balance sheet, what amount should be reported as total retained earnings?

When accounting for business combinations, the acquired entity's stockholders' equity is deducted from the investment account. As a result, consolidated retained earnings only include the parent company's retained earnings.

Thus, on December 31, 20X1, the Owen Corp. consolidated balance sheet would show a retained earnings amount of $1,240,000, which is equal to Owen's separate retained earnings.

Retained earnings are the profits left over after a company has paid all of its direct and indirect costs, income taxes, and dividends to shareholders. This is the portion of the company's equity that can be used to invest in new equipment, R&D, and marketing.

Retained earnings are referred to as "accumulated profits" when they are accumulated year after year.

Banks will look at your company's retained earnings before lending you more money. Year after year, retained earnings are added to the balance sheet and become part of the company's equity with the money that shareholders initially invested.

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