Little Company declared a dividend of $90,000 for the period ended 30 June 2005.Big Company owns 100 per cent of the equity of Little Company.Big Company accrues dividends when they are declared by its subsidiaries.What elimination entry would be required to prepare the consolidated financial statements for the group for the period ended 30 June 2005?
E) None of the given answers.

Question

Quizplus · Accepted Answer

To eliminate the impact of intercompany dividend, we need to reduce the dividend declared by Little Company from the equity of Big Company. As Big company owns 100% of Little Company, we need to eliminate 100% of the impact. Therefore, the elimination entry would be: 
DR Investment in Little Company (Asset) $90,000
CR Dividend Income (Revenue) $90,000
This entry would be made by Big Company in its books to eliminate the impact of the dividend declared by Little Company. Therefore, option B is the correct answer.

Little Company Declared a Dividend of $90,000 for the Period