Scott Co. paid $2,800,000 to acquire all of the common stock of Dawn Corp. on January 1, 2020. Dawn’s reported earnings for 2020 totaled $512,000, and it paid $160,000 in dividends during the year. The amortization of allocations related to the investment was $28,000. Scott’s net income, not including the investment, was $3,310,000, and it paid dividends of $950,000.On the consolidated financial statements for 2020, what amount should have been shown for consolidated dividends?
NOT $-0-
To determine the consolidated dividends for 2020, we need to add the dividends paid by both companies and adjust for any intercompany dividends.
Scott Co.’s dividends paid in 2020 amounted to $950,000.
Dawn Corp.’s dividends paid in 2020 amounted to $160,000.
However, since Scott Co. now owns all of the common stock of Dawn Corp., any dividends paid by Dawn Corp. to Scott Co. are considered intercompany dividends and are eliminated in consolidation.
Therefore, the consolidated dividends for 2020 would be the sum of the dividends paid by both companies, minus any intercompany dividends:
Consolidated dividends = Scott Co. dividends + Dawn Corp. dividends – Intercompany dividends
Consolidated dividends = $950,000 + $160,000 – $0 (since there were no intercompany dividends)
Consolidated dividends = $1,110,000
Thus, the amount that should have been shown for consolidated dividends in the consolidated financial statements for 2020 is $1,110,000.
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