ADVANCED ACCOUNTING
ADVANCED ACCOUNTING
12th Edition
ISBN: 9780357671221
Author: FISCHER
Publisher: CENGAGE L
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Chapter 8, Problem 1UTI
To determine

Business combination:

Business combination refers tothe combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.

Consolidated financial statements:

The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity.The consolidated financial statements serve the purpose of both the entities about financial information.

:

Impact of the dividend on the equity of the subsidiary and the investment account.

Expert Solution & Answer
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Explanation of Solution

    DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
     Retained earnings  500,000  
     Common stock   10,000
     Paid in capital in excess of par   490,000
     (being the stock dividend recorded)   

Table: (1)

The adjustment entry for the dividend is not required in the books of the subsidiary company as this transaction will not impact the equity of the subsidiary company. The parent will not make adjustment for the given transaction in its books of accounts. The equity of the subsidiary will not change in the consolidated statements. There is no requirement for any adjustment entry in the books of the parent company as there is no change in the total equity of the subsidiary when the investment in Company S is eliminated from consolidated financial statements. The revised holding is eliminated from accounts of parent company.

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