When a subsidiary is reporting profits, the consolidated net income can never equal the parent's net income under the cost method.

Question

Quizplus · Accepted Answer

Under the cost method, the parent company records its investment in the subsidiary at cost and recognizes income only when dividends are received. Therefore, if the subsidiary does not declare dividends, the consolidated net income can equal the parent's net income, as the subsidiary's profits would not impact the parent's income statement until dividends are declared.

When a Subsidiary Is Reporting Profits, the Consolidated Net Income