[Anonymous]

Hello, can someone tell me why dividends doesn’t affect consolidated retained earnings? The explanation didn’t really help well, but if someone can explain it, I’ll surely appreciate it.

[jamesb]

Which MCQ are u referring to?

All Sub's Equity accounts are eliminated in consolidation.

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Becker
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[Anonymous]

The question is pretty long but it basically is asking what is RE when the parent paid x dividend and the sub paid y dividend. I know consolidated RE doesn't change, however I'm a bit confused of why it doesn't change.

[jamesb]

I think I have seen that question.

Isn't that because intercompany trans don't effects Equity accounts between Parent and Sub?

If that question is frm Becker, give question #.

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[Igotthis]

When consolidated the parent owns much of the stock of sub so most of the dividend will be paid to parent but this counts as intercompany so it gets eliminated. As for the NCI dividends from the sub those do not effect the parent because subsidiary dividends do not represent dividends of the consolidated entity.

The only time dividends is not a reduction of capital is during cost method which is under 20% ownership. Equity method which is between 25% to 49% is a reduction in investment in subsidiary.

Sorry if this confuses you more.

[Anonymous]

sorry its not becker : /

[musicamor]

Dividends will be eliminated upon consolidation when you are applying the acquisition method; therefore, there is no effect in total. If any portion of the dividends interacts with unconsolidated entities, i.e., non-controlling interests, etc, then that portion would remain as a debit to retained earnings in the consolidated balance sheet.

Texas CPA - licensed in 2012!!!

[Anonymous]

Thanks everyone, I think I got it. The simplest thing can be so difficult sometimes lol.

[Author]

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