Question

When a parent uses the equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet? Parent company net income equals controlling interest in consolidated net income. Parent company retained earnings equals consolidated retained earnings. Parent company total assets equals consolidated total assets. Parent company dividends equals consolidated dividends.

Answer 1

Answer:

Parent company retained earnings equals consolidated retained earnings.

FALSE

Explanation:

When the company  acquired the subsidiary, it already had a retained earnings balance. This will be added to parent company retained earnings in the consolidated balance.

Parent Equity

Common Stock 100

RE                      200

Subsidiary:

Common Stock   10

Re                          5

As the subsidiary retained earnings will change by his net income and dividends it will differ to parent company as the parent dividends will be different as well as the income for the year.