A is corrent. Retained earnings reported on the consolidated balance sheet would equal the acquiree’s retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquiree would decrease the acquiree’s retained earnings, there would be no effect on consolidated retained earnings. Noncontrolling interest equals the fair value of the noncontrolling shares of stock of the acquisition. This balance would be increased by the noncontrolling interests percentage of income of the acquiree, and decreased by the noncontrolling interest’s share of the dividend of acquiree. This balance would include subsidiary retained earnings which would have been decreased by the declaration and payment of dividends. Thus, noncontrolling interest would also have decreased and this answer is correct.
B is incorrect. Retained earnings reported on the consolidated balance sheet would equal the acquiree’s retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquiree would decrease the acquiree’s retained earnings, there would be no effect on consolidated retained earnings.
C is incorrect. Retained earnings reported on the consolidated balance sheet would equal the acquiree’s retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquiree would decrease the acquiree’s retained earnings, there would be no effect on consolidated retained earnings.
D is incorrect. Retained earnings reported on the consolidated balance sheet would equal the acquiree’s retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquiree would decrease the acquiree’s retained earnings, there would be no effect on consolidated retained earnings.
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