Question One: True/False Questions: (4 marks) (A1, C1)

1. Under the equity method of accounting, a parent company's journal entry to record a dividend declared by the subsidiary includes a debit to the Retained Earnings of Subsidiary ledger account and a credit to the Dividends Revenue ledger account.
2. The depreciation and amortization of differences between current fair values and carrying amounts of a subsidiary's identifiable net assets is included in consolidated financial statements by means of working paper elimination.
3. Under the equity method of accounting, the parent company debits the Intercompany Investment Income ledger account for the depreciation and amortization of differences between the current fair values and carrying amounts of a subsidiary's identifiable net assets on the date of the business combination.
4. Intercompany sales of merchandise by a parent company to a subsidiary are similar to the intracompany shipments of merchandise by a home office to a branch.