When a parent accounts for its investment in a subsidiary using the equity method, only the subsidiary's undistributed retained earnings is added to the parent's retained earnings in the consolidation process.

Question

Quizplus · Accepted Answer

In the consolidation process, the parent's investment in the subsidiary is eliminated against the subsidiary's equity (including both initial investment and undistributed retained earnings), and only the subsidiary's net income (not just undistributed retained earnings) affects the parent's retained earnings through the equity method.

When a Parent Accounts for Its Investment in a Subsidiary