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 for a consolidation worksheet in the second year?
A) Retained eargings
Investrent in subsidiary
B) Investment in subsidiary
Retaingd earnings
C) Investrent in subsidiary
Equity in subsidiary's income
D) Investment in subsidiary
Additional paid-in cappital
E) Retained earnings
Additional paid-in capital

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 for a consolidation worksheet in the second year?
A) Retained eargings
 Investrent in subsidiary
B) Investment in subsidiary 
Retaingd earnings
C) Investrent in subsidiary
 Equity in subsidiary's income
D) Investment in subsidiary
Additional paid-in cappital
E) Retained earnings
Additional paid-in capital

Quizplus · Accepted Answer

When using the initial value method, the parent company records its investment at cost and does not adjust for the subsidiary's income or dividends. In the consolidation worksheet, the entry would adjust retained earnings and the investment in the subsidiary to reflect the subsidiary's income being less than the dividends paid.

When a Company Applies the Initial Value Method in Accounting