When preparing a consolidated balance sheet worksheet when the investment account is maintained under the simple equity method:
A)the parent's share of subsidiary income should be eliminated against retained earnings.
B)the parent's share of the subsidiary's equity accounts may be eliminated directly against the investment account.
C)any intercompany sales must be eliminated against cost of goods sold.
D)the investment account should be converted to the cost method as of the end of the year.

Question

When preparing a consolidated balance sheet worksheet when the investment account is maintained under the simple equity method:
A)​the parent's share of subsidiary income should be eliminated against retained earnings.
B)​the parent's share of the subsidiary's equity accounts may be eliminated directly against the investment account.
C)​any intercompany sales must be eliminated against cost of goods sold.
D)​the investment account should be converted to the cost method as of the end of the year.

Quizplus · Accepted Answer

When the investment account is maintained under the simple equity method in a consolidated balance sheet worksheet, the parent's share of the subsidiary's equity accounts may be eliminated directly against the investment account. However, any intercompany sales must be eliminated against the appropriate revenue or cost accounts, and the parent's share of subsidiary income should not be eliminated against retained earnings. The investment account should not be converted to the cost method unless there is evidence of impairment.

When Preparing a Consolidated Balance Sheet Worksheet When the Investment