If the parent company uses the complete equity method when accounting for its wh
ID: 2465826 • Letter: I
Question
If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books
The subsidiary’s separately reported income equals total consolidated income to the parent
The parent’s separately reported income plus the subsidiary’s separately reported income equals total consolidated income
The parent’s separately reported income equals consolidated income
The parent’s separately reported income equals the subsidiary’s ending retained earnings balance
If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books
Explanation / Answer
If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books. The parent’s separately reported income plus the subsidiary’s separately reported income equals total consolidated income. The correct answer is option (B). The equity stake of the investor is completely documented in the balance sheet of the owner's equity. The double counting is avoided in the counting statement of the parent company.