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Hi, I was hoping someone could help me with this question. I understand how they got the answer and their logic behind it. However, I thought when you consolidate, dividends of the subsidiary, which would be part of retained earnings, gets eliminated entirely because we only report the parent’s retained earnings in the consolidated balance sheet. Then, any portion of dividends that is attributable to the non-controlling interest would reduced their balance. However, no dividends paid by the subsidiary are actually reported on the balance sheet right? Why is the answer $10,000 then?
Question CPA-06919
Jane Co. owns 90% of the common stock of Dun Corp. and 100% of the common stock of Beech Corp. On December 30, Dun and Beech each declared a cash dividend of $100,000 for the current year. What is the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech?
a. $10,000 b. $100,000 c. $190,000 d. $200,000
Explanation
Choice “a” is correct. Since Jane owns 90% of Dun and 100% of Beech, when they declare and pay dividends, the only amounts that should appear in their year-end consolidated financial statements are the dividends paid to outsiders or external parties. Intercompany dividends should be eliminated upon consolidation. In this case, the only non- controlling interest that exists is the 10% of Dun that Jane does not own. So all 100% of Beech’s $100,000 dividend would be eliminated, but only 90% of Dun’s $100,000 would be eliminated. Therefore, just 10% of Dun’s $100,000 dividend, or $10,000, will appear in Jane and subs’ year-end consolidated financial statements.
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