A parent company uses the equity method of accounting for passed dividends on the subsidiary's outstanding cumulative preferred stock owned by the parent.

Question

Quizplus · Accepted Answer

The equity method of accounting requires the parent company to recognize its share of the subsidiary's net income or loss, which includes dividends declared by the subsidiary. Therefore, the parent company must also recognize its share of any passed dividends on the subsidiary's outstanding cumulative preferred stock.

A Parent Company Uses the Equity Method of Accounting for Passed