Question

A parent company uses the partial equity method to account for an investment in common stock...

A parent company uses the partial equity method to account for an investment in common stock of its subsidiary. A portion of the dividends received this year were in excess of the parent company’s share of the subsidiary’s earnings subsequent to the date of the investment. The amount of dividend income that should be reported in the parent company’s separate income statement should be

Select one:

a. the portion of the dividends received this year that were NOT in excess of the parent’s share of subsidiary’s earnings subsequent to the date of investment.

b. the total amount of dividends received this year.

c. zero.

d. the portion of the dividends received this year that were in excess of the parent’s share of subsidiary’s earnings subsequent to the date of investment.

Homework Answers

Answer #1

Answer is option "C" that is "Zero".

The same is not recoded in parent company's separate income statement. The consolidated Statements of Income only report the activities from outside the economic activity. Any revenue earned by the parent company that is the expenseof the subsidiary company is ommited from the financial statements. This is because the net change in financial statements is zero. The revenue generated from one legal entity is offset by the expense in another legal entity.

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