If the Parent Company Used the Equity Method to Account

question 34

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

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