What is the consolidation entry to eliminate an interim dividend paid by a subsidiary to its parent?
The consolidation entry to eliminate an interim dividend paid by a subsidiary to its parent is dr Dividend Revenue; cr Interim Dividend Paid.
Explanation:
When preparing consolidated financial statements, intercompany transactions need to be eliminated to avoid double counting. In the case of an interim dividend paid by a subsidiary to its parent, the consolidation entry to eliminate this transaction involves debiting Dividend Revenue and crediting Interim Dividend Paid.
This entry removes the dividend revenue recognized at the parent level and the interim dividend paid by the subsidiary from the consolidated financial statements. By doing so, the financial statements present a more accurate picture of the overall financial position and performance of the consolidated entity.
The debit to Dividend Revenue reduces the income of the consolidated entity by the amount of the dividend revenue recognized at the parent level. On the other hand, the credit to Interim Dividend Paid eliminates the cash outflow by the subsidiary to pay the dividend to its parent.
In summary, the consolidation entry for eliminating an interim dividend transaction ensures that the financial statements reflect the economic reality of the consolidated entity without double-counting the effects of intercompany transactions.