Question

When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals consolidated net income.B) Parent company retained earnings equals consolidated retained earnings.C) Parent company total assets equals consolidated total assets.D) Parent company dividends equal consolidated dividends.E) Goodwill is recorded on the parent's books.

Answer 1

Answer:

The correct answer is D) Parent company dividends equal consolidated dividends.

Explanation:

When economic, financial and administrative links are created between two legally independent entities, where it presents a subordination relationship, a series of reports that integrate the financial statements must be prepared, consolidating those of one company with the other.

The consolidation of the balances between a parent and a subsidiary is achieved by integrating the accounts of each of them, eliminating accounts such as:

• The investment of the parent company in the subordinate.
• Accounts receivable generated by transactions between the parent and the subsidiary.
• Accounts payable generated by transactions between the parent and the subsidiary.
• Sales and purchases between companies.
• Dividends between the two companies.
• Earnings between entities in the initial or final inventory.