Which of the following adjustments (if any) to Retained Earnings is necessary for the preparation of the consolidated balance sheet?

A) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income.
B) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income less any dividends received from the subsidiary.
C) No adjustment is required under either the Cost or the Equity methods.
D) No adjustment is required if the parent has been using the Equity Method.

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Destiny Beardsley · Accepted Answer

Final Answer : D, Explanation :  When preparing consolidated financial statements, if the parent company has been using the Equity Method to account for its investment in a subsidiary, adjustments to Retained Earnings are not necessary. This is because under the Equity Method, the parent's share of the subsidiary's income and dividends received from the subsidiary are already reflected in the parent's financial statements, thus affecting the parent's Retained Earnings accordingly.

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