Answer:
Phips' post-closing retained earnings balance on December 31, 20X2 = $577,000
Explanation:
Note: When 100% shares of a company is acquired it is treated as subsidiary and for its accounting equity method is used.
In that case all balances of subsidiary are added to balances of Parent company.
But if any dividend is received then such value is deducted from carrying value of investment, and any share in profit will be added to carrying value.
All the retained earnings balance is accumulated together of both companies.
Therefore closing balance shall be
Retained earnings balance of Sips at year end
= $120,000 + $20,000 - $8,000 = $132,000
Year end balance of Phips Alone
= $320,000 + 125,000 = $445,000
Total Retained Earnings at year end = $132,000 + $445,000 = $577,000
