At acquisition date, a wholly owned subsidiary had the following equity items: - Retained earnings $28 000
- Share capital $60 000
- Business combination revaluation reserve $12 000
In the year following the acquisition, the subsidiary transferred $20 000 from pre-acquisition retained earnings to a general reserve account. At the reporting date following the reserve transfer, the following consolidation adjustment is needed:
A) DR Retained earnings $20 000 CR General reserve $20 000
B) DR General reserve $20 000 CR Shares in subsidiary $20 000
C) DR Shares in subsidiary $20 000 CR Retained earnings $20 000
D) DR General reserve $20 000 CR Retained earnings $20 000

Question

Quizplus · Accepted Answer

The correct adjustment reflects the transfer from retained earnings to general reserve within the subsidiary. Since this involves pre-acquisition retained earnings, it doesn't affect the parent's investment in the subsidiary but requires reallocation within equity in the consolidated financial statements.

At Acquisition Date, a Wholly Owned Subsidiary Had the Following