If the Parent Company Used the Equity Method to Account

question 14

Multiple Choice

If the parent company used the equity method to account for its investment and the subsidiary company showed a profit for the past year, the consolidation elimination entry required to remove a subsidiary's income from the parent's books prior to the preparation of consolidated financial statements would be:

• A)
• \(\begin{array}{|l|r|r|}
• \hline& \text { Debit } & \text { Credit } \\
• \hline \text { Equity method income-Parent } & \$ \$ \$ & \\
• \hline \text { Retained Earnings - Parent } & & \$ \$ \$\\\hline
• \end{array}\)
• B)
• \[\begin{array} { | l | r | r | }
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Equity method income-Parent } &\$ \$\$ \\
• \hline \text { Investrnent in Subsidiary } & &\$ \$\$ \\
• \hline
• \end{array}\]
• C)
• \[\begin{array} { | l | r | r | }
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Equity method income-Parent } &\$\$\$ \\
• \hline \text { Acquisition Differential } & &\$\$\$ \\
• \hline
• \end{array}\]

Understand the steps involved in processing financial transactions.

Understand the concept of decision-making under risk and uncertainty, including aggressive and conservative strategies.

Calculate and interpret expected payoffs and expected values in decision-making contexts.

Explain the significance of clinical trials and FDA approval in the pharmaceutical industry's revenue projections.

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Definitions:

Adjusting Entry

A journal entry made in accounting records at the end of an accounting period to allocate income and expenditure to the correct period.

Net Income

The net earnings of a company, calculated by deducting all operating costs and taxes from the total income.

Adjusting Entries

Entries recorded in the journals at the conclusion of a fiscal period to distribute revenues and costs to the timeframe in which they genuinely took place.

Supplies Expense

The cost of supplies used during an accounting period, typically classified as an operating expense.