[Anonymous]

How does a cash dividend affect minority interest?

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A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling (minority) interest balances in the parent company’s consolidated balance sheet?

Incorrect

A. No effect on either retained earnings or noncontrolling interest

B. No effect on retained earnings and a decrease in noncontrolling interest

C. Decreases in both retained earnings and noncontrolling interest

D. A decrease in retained earnings and no effect on noncontrolling interest

B. The dividend will have no effect on consolidated retained earnings because consolidated retained earnings include only retained earnings of the parent company. However, since the noncontrolling (minority) interest (in this case, 30%) is a percentage of the stockholder equity (including retained earnings) of the subsidiary, any reduction in subsidiary retained earnings (such as dividend declaration) will decrease noncontrolling (minority) interest.