The consolidation elimination entry required to remove any dividends received from a subsidiary prior to the preparation of consolidated financial statements (assuming that the parent uses the cost method to record its investment in the subsidiary) would be:A) Debit Credit Equity method income-Parent $ $ $ Retained Earnings-Parent $ $ $ \begin{array}{|l|r|r|}\hline & ext { Debit } & ext { Credit } \\hline ext { Equity method income-Parent } & \$ \$ \$ & \\hline ext { Retained Earnings-Parent } & & \$ \$\$ \\hline\end{array} Equity method income-Parent Retained Earnings-Parent Debit $ Credit $ B) Debit Credit Dividend Income-Subsidiary $ $ $ Investrnent in Subsidiary $ $ $ \begin{array} { | l | r | r | } \hline & ext { Debit } & ext { Credit } \\hline ext { Dividend Income-Subsidiary } & \$\$\$ & \\hline ext { Investrnent in Subsidiary } & & \$\$\$ \\hline\end{array} Dividend Income-Subsidiary Investrnent in Subsidiary Debit $ Credit $ C) Debit Credit Dividend Income-Parent $ $ $ Dividends-Subsidiary $ $ $ \begin{array} { | l | r | r | } \hline & ext { Debit } & ext { Credit } \\hline ext { Dividend Income-Parent } & \$\$\$ & \\hline ext { Dividends-Subsidiary } & & \$\$\$ \\hline\end{array} Dividend Income-Parent Dividends-Subsidiary Debit $ Credit $

Question

The consolidation elimination entry required to remove any dividends received from a subsidiary prior to the preparation of consolidated financial statements (assuming that the parent uses the cost method to record its investment in the subsidiary)  would be:A)  Debit   Credit   Equity method income-Parent  $ $ $  Retained Earnings-Parent  $ $ $ \begin{array}{|l|r|r|}\hline  &  	ext { Debit }  &  	ext { Credit } \\hline 	ext { Equity method income-Parent }  &  \$ \$ \$  &  \\hline 	ext { Retained Earnings-Parent }  &   &  \$ \$\$ \\hline\end{array}  Equity method income-Parent   Retained Earnings-Parent  ​  Debit   $ ​  Credit   $ ​ ​ B)  Debit   Credit   Dividend Income-Subsidiary  $ $ $  Investrnent in Subsidiary  $ $ $ \begin{array} { | l | r | r | } \hline  &  	ext { Debit }  &  	ext { Credit } \\hline 	ext { Dividend Income-Subsidiary }  & \$\$\$  &  \\hline 	ext { Investrnent in Subsidiary }  &   & \$\$\$ \\hline\end{array}  Dividend Income-Subsidiary   Investrnent in Subsidiary  ​  Debit   $ ​  Credit   $ ​ ​ C)  Debit   Credit   Dividend Income-Parent  $ $ $  Dividends-Subsidiary  $ $ $ \begin{array} { | l | r | r | } \hline  &  	ext { Debit }  &  	ext { Credit } \\hline 	ext { Dividend Income-Parent }  & \$\$\$ &   \\hline 	ext { Dividends-Subsidiary }  &   & \$\$\$ \\hline\end{array}  Dividend Income-Parent   Dividends-Subsidiary  ​  Debit   $ ​  Credit   $ ​ ​

Damjan Popovski · Accepted Answer

Final Answer : C, Explanation :When preparing consolidated financial statements, intercompany transactions, including dividends paid by a subsidiary to its parent company, must be eliminated. This is because consolidated financial statements present the financial position and results of operations as if the parent and its subsidiaries are a single economic entity. Dividends paid by a subsidiary to its parent are essentially transfers of money within the economic entity and do not represent income to the entity as a whole.Assuming that the parent company uses the cost method to record its investment in the subsidiary, the parent would record dividends received as dividend income. To eliminate this intercompany dividend for consolidation purposes, the following entry would be made:Debit: Dividend Income-Parent (for the amount of the dividend received)Credit: Dividends-Subsidiary (for the amount of the dividend declared)This entry removes the dividend income recognized by the parent and the corresponding dividend declared by the subsidiary, ensuring that the consolidated financial statements do not show this internal transfer as income.Therefore, the full answer for the input question is:C. Debit Credit Dividend Income-Parent $ $ $ Dividends-Subsidiary $ $ $ \begin{array}{|l|r|r|}\hline &  	ext{Debit}  &  	ext{Credit} \\hline	ext{Dividend Income-Parent}  &  \$\$\$  &  \\hline	ext{Dividends-Subsidiary}  &   &  \$\$\$ \\hline\end{array} Dividend Income-Parent Dividends-Subsidiary ​ Debit  $ ​ Credit  $ ​ ​

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