Effect of errors on financial statements. Using the notation O/S (overstated), U/S (understated), or NO (no effect),
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a. In applying the equity method. P correctly accrues its share of S’s net income for the year. However, when receiving a dividend. P credits Dividend Revenue.
b. P acquired 30% of S on January 1 of the current year for an amount in excess of the carrying value of S’s net assets. The excess relates to patents. P correctly accounted for its share of S’s net income and dividends for the year but neglected to amortize any of the excess purchase price.
c. During the current year, P sold inventory items to S, it wholly owned subsidiary at a profit. S sold these inventory items, and S paid P for them before the end of the year. The firms made no elimination entry for this intercompany sale on the consolidation work sheet.
d. Refer to part c. Assume that S owes P $10,000 for intercompany purchases at year-end. The firm made no elimination entry for this intercompany debt.
e. P owns 90% of S. P treats the non-controlling interest in consolidated subsidiaries as a liability. In preparing a consolidated work sheet, the firms made no entry to accrue the non-controlling interest’s share of S’s net income or of S’s net assets.
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For
Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis
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