When a Company Applies the Initial Value Method in Accounting

question 124

Multiple Choice

When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet?
A. Retained earnings
Investment in subsidiary

B. Investment in subsidiary
Retained earnings

C. Investment in subsidiary
Equity in subsidiary's income

D. Investment in subsidiary
Additional paid-in capital

E. Retained earnings
Additional paid-in capital

• A)A above
• B)B above
• C)C above
• D)D above
• E)E above

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Definitions:

Fiscal Year

A government's or organization's financial year used for accounting purposes, which may not necessarily align with the calendar year.

Multiplier

In economics, a factor by which a change in spending will be magnified in the overall economy, affecting output and income levels.

MPC

Marginal Propensity to Consume, which measures the proportion of additional income that an individual spends on consumption.

Aggregate Demand

The complete appetite for goods and services in an economy, marked by an overarching price level throughout a specified duration.