Flagstone Limited acquired 100% of the shares in Pebbles Limited on a cum div. basis for $700 000. At acquisition date, the Pebbles Limited had a declared dividend of $80 000. The pre-acquisition entry must include the following line:

A) Dr Shares in subsidiary $620 000
B) Cr Shares in subsidiary $620 000
C) Cr Shares in subsidiary $80 000
D) Cr Shares in subsidiary $780 000

Question

Jordan Nuques · Accepted Answer

Final Answer : B, Explanation :  The pre-acquisition entry should include the cost of acquisition which is $700 000 and the dividend declared by Pebbles Limited, which is $80 000. Thus, the entry should be:Dr Investment in subsidiary $700 000Cr Cash $700 000Cr Dividend income $80 000 (to record the dividend received from the subsidiary)Cr Shares in subsidiary $620 000 (to eliminate the share capital of Pebbles Limited)

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