Parent Limited Acquired 100% of a Subsidiary on 1 July

question 8

Multiple Choice

Parent Limited acquired 100% of a subsidiary on 1 July 20X7.At acquisition date the subsidiary had the following equity items:
-Retained earnings $24 000
-Share capital $33 000
-Business combination revaluation reserve $10 000
In the year following the acquisition the subsidiary paid a bonus dividend of $14 000 out of pre-acquisition retained earnings.The following consolidation adjustment is needed in the consolidation worksheet for 30 June 20X8:

• A)DR Share capital $14 000 CR Bonus dividend paid $14 000
• B)DR Shares in subsidiary 14 000 CR Share capital $14 000
• C)DR Bonus dividend paid $14 000 CR Retained earnings $14 000
• D)DR Retained earnings $14 000 CR Share capital $14 000.

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Definitions:

Payback Period

The amount of time required for an investment to generate cash flows to recover its initial cost.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales activity, such as rent, salaries, and insurance.

Operating Cash Flow

The cash a company generates from its normal business operations, excluding financing and investing activities.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.