In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is:
A) included with parent company income from other sources to constitute consolidated net income.
B) assigned as a component of the noncontrolling interest.
C) allocated proportionately to consolidated net income and the noncontrolling interest.
D) eliminated.

Question

Quizplus · Accepted Answer

In the preparation of consolidated financial statements, dividend income recognized by a parent company from dividends distributed by its subsidiary is eliminated. This is because consolidated financial statements present the financial position and results of operations of a parent and its subsidiaries as if the group were a single entity. Dividends paid by a subsidiary to its parent are internal transactions within the group and thus are eliminated in consolidation to avoid double counting of income.

In the Preparation of a Consolidated Statements Workpaper, Dividend Income