Which accounts on the consolidated balance sheet will be different when the entity method is used from when the parent company extension theory is used?
A) The investment in subsidiary balance and the consolidated retained earnings balance.
B) The goodwill balance and the consolidated retained earnings balance.
C) The goodwill balance and the non-controlling interest balance.
D) The investment in subsidiary balance and the non-controlling interest balance.

Question

Quizplus · Accepted Answer

The difference between the entity method and the parent company extension theory lies in how the subsidiary's equity is treated. With the entity method, the subsidiary's equity is eliminated, resulting in a consolidation of the parent's equity and the non-controlling interest. With the parent company extension theory, the subsidiary's equity is included in the consolidation through the use of a consolidated retained earnings balance. Therefore, the accounts that will be different when using these methods would be the goodwill balance and the non-controlling interest balance, as the non-controlling interest will be calculated differently depending on the method used. The investment in subsidiary balance remains the same in both methods as this is the initial investment cost at acquisition.

Which Accounts on the Consolidated Balance Sheet Will Be Different