A is corrent because of the reciprocal ownership relationship that exists between the two companies. Pride (the acquirer) owns 80% of Simba (the acquiree), and Simba owns 10% of Pride. When Pride declares a cash dividend, 90% of it is distributed to outside parties and 10% goes to Simba. Because Simba is part of the consolidated entity, its 10% share is eliminated; thus, only 90% of dividends declared by Pride are reported in the consolidated statements. When Simba declares a dividend, 80% is distributed to Pride and 20% to outside parties. Pride’s 80% share is eliminated as an intercompany transaction and the remaining 20% is also excluded because, from the acquirer’s point of view, acquiree dividends do not represent dividends of the consolidated entity and must be eliminated.
B is incorrect. A reciprocal ownership relationship exists between the two companies such that Pride (the acquirer) owns 80% of Simba (the acquiree), and Simba owns 10% of Pride. When Pride declares a cash dividend, 90% of it is distributed to outside parties and 10% goes to Simba. Because Simba is part of the consolidated entity, its 10% share is eliminated; thus, only 90% of dividends declared by Pride are reported in the consolidated statements. When Simba declares a dividend, 80% is distributed to Pride and 20% to outside parties. Pride’s 80% share is eliminated as an intercompany transaction and the remaining 20% is also excluded because, from the acquirer’s point of view, acquiree dividends do not represent dividends of the consolidated entity and must be eliminated.
C is incorrect. A reciprocal ownership relationship exists between the two companies such that Pride (the acquirer) owns 80% of Simba (the acquiree), and Simba owns 10% of Pride. When Pride declares a cash dividend, 90% of it is distributed to outside parties and 10% goes to Simba. Because Simba is part of the consolidated entity, its 10% share is eliminated; thus, only 90% of dividends declared by Pride are reported in the consolidated statements. When Simba declares a dividend, 80% is distributed to Pride and 20% to outside parties. Pride’s 80% share is eliminated as an intercompany transaction and the remaining 20% is also excluded because, from the acquirer’s point of view, acquiree dividends do not represent dividends of the consolidated entity and must be eliminated.
D is incorrect. A reciprocal ownership relationship exists between the two companies such that Pride (the acquirer) owns 80% of Simba (the acquiree), and Simba owns 10% of Pride. When Pride declares a cash dividend, 90% of it is distributed to outside parties and 10% goes to Simba. Because Simba is part of the consolidated entity, its 10% share is eliminated; thus, only 90% of dividends declared by Pride are reported in the consolidated statements. When Simba declares a dividend, 80% is distributed to Pride and 20% to outside parties. Pride’s 80% share is eliminated as an intercompany transaction and the remaining 20% is also excluded because, from the acquirer’s point of view, acquiree dividends do not represent dividends of the consolidated entity and must be eliminated.
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