At the date of acquisition, a subsidiary had recorded a dividend payable of $10000. Assuming that the shares were acquired on a cum div. basis, the consolidation adjustment needed at the date of acquisition to eliminate the dividend is:
Question
At the date of acquisition, a subsidiary had recorded a dividend payable of $10000. Assuming that the shares were acquired on a cum div. basis, the consolidation adjustment needed at the date of acquisition to eliminate the dividend is:
Solution
The consolidation adjustment needed at the date of acquisition to eliminate the dividend would be a debit (decrease) to the dividend payable account in the subsidiary's books and a credit (decrease) to the investment in subsidiary account in the parent's books. This is because the parent company, having acquired the shares on a cum div. basis, is entitled to receive the dividend. Therefore, the dividend payable is not a liability of the group. The entries would be as follows:
Debit: Dividend Payable 10,000 (Parent)
This eliminates the dividend payable from the consolidated balance sheet and reduces the investment in subsidiary account by the same amount.
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