When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made to convert to full-accrual totals in a consolidation worksheet for the second year?
A)A above.
B)B above.
C)C above.
D)D above.
E)E above.

Question

When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made to convert to full-accrual totals in a consolidation worksheet for the second year? 
A)A above. 
B)B above. 
C)C above. 
D)D above. 
E)E above.

Quizplus · Accepted Answer

When using the initial value method, the investment account is adjusted for dividends received and the subsidiary's reported income. In the second year of consolidation, if the subsidiary reports income less than dividends paid, the consolidation worksheet entry to adjust to full-accrual totals would be to debit the investment account for the difference between the subsidiary's reported income and the dividends paid, and credit the hypothetical full-accrual income account for the same amount. Choice A reflects this entry.

When a Company Applies the Initial Value Method in Accounting