Parent Limited acquired 100% of a subsidiary on 1 July 20X7.At acquisition date the subsidiary had the following equity items:
-Retained earnings $24 000
-Share capital $33 000
-Business combination revaluation reserve $10 000
In the year following the acquisition the subsidiary paid a bonus dividend of $14 000 out of pre-acquisition retained earnings.The following consolidation adjustment is needed in the consolidation worksheet for 30 June 20X8:
A)DR Share capital $14 000 CR Bonus dividend paid $14 000
B)DR Shares in subsidiary 14 000 CR Share capital $14 000
C)DR Bonus dividend paid $14 000 CR Retained earnings $14 000
D)DR Retained earnings $14 000 CR Share capital $14 000.

Question

Quizplus · Accepted Answer

The bonus dividend paid by the subsidiary out of pre-acquisition retained earnings reduces the retained earnings of the subsidiary and increases the share capital of the subsidiary. Therefore, the consolidation adjustment is to debit Share capital and credit Bonus dividend paid.

Parent Limited Acquired 100% of a Subsidiary on 1 July