|Posted: 25 Oct 2010 at 11:34 | IP Logged
On January 2 of the current year, Peace Co. paid $310,000 to purchase 75% of the voting shares of Surge Co. Peace reported retained earnings of $80,000, and Surge reported contributed capital of $300,000 and retained earnings of $100,000. The purchase differential was attributed to depreciable assets with a remaining useful life of 10 years. Peace used the equity method in accounting for its investment in Surge. Surge reported net income of $20,000 and paid dividends of $8,000 during the current year. Peace reported income, exclusive of its income from Surge, of $30,000 and paid dividends of $15,000 during the current year. What amount will Peace report as dividends declared and paid in its current year's consolidated statements of retained earnings?
ANSWER: When the financial statements of Peace and Surge are consolidated, the equity of Surge--including Surge's retained earnings will be eliminated. The consolidated statement of retained earnings will include only the $15,000 dividend paid by Peach during the current year.
I understand that the Sub's entire equity is eliminated and the consolidated statements are combined line by line. However...this consolidation is not 100% owned. There actually is a Non-Controlling Interest (NCI) here. NCI=25%. So then...wouldn't 25% of the sub's dividends STILL be recorded (as a decrease) to the Non-Contrlling Interest account??? NCI doesn't get eliminated. So then...25% of the the Sub's dividends should ALSO be recorded in the consolidated statement of retained earnings...right???
I think I've officially confused myself at this point. Please help. :-/
AUD 79, 80
REG 73, 67, 80
FAR 63, 71, 67, 70, 80
PRAISE GOD--I'M DONE!!! :-)