Both Consolidation and Equity Method Accounting Assume a Dollar Earned

question 20

Multiple Choice

Both consolidation and equity method accounting assume a dollar earned by a subsidiary is equivalent to a dollar earned for a parent, even if not received in cash. The limitations of this assumption of dollar-for-dollar equivalence include which of the following?

I. Dividends restricted by law and loan covenants
II. Risks due to political and economic factors
III. Tax liabilities from remittance of earnings
IV. Minority interests that limit parent's discretion

• A)II and III
• B)II
• C)I and III
• D)I, II, III, and IV

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