Company A Limited owns 70% of the share capital of Company B Limited. Company B Limited paid a dividend of £10 000 during the financial period. The adjustment entries in the consolidation worksheet for the dividend include:
A) DR Dividend revenue £7 000;
B) DR Dividend revenue £10 000;
C) DR Dividend payable £7 000;
D) DR Dividend payable £10 000.

Question

Quizplus · Accepted Answer

CWhen consolidating financial statements, dividends paid by a subsidiary (Company B Limited) to its parent company (Company A Limited) are eliminated in consolidation. Since Company A owns 70% of Company B, it would receive 70% of the £10,000 dividend, which is £7,000. The correct entries to eliminate this intercompany transaction are: Debit Dividend Revenue £7,000 to remove the dividend income recognized by the parent, and Debit Dividend Payable £7,000 to eliminate the liability for the dividend payable to the parent.

Company a Limited Owns 70% of the Share Capital of Company