Final answer:
c) Investment in subsidiary Equity in subsidiary's income
Under the partial equity method, the typical consolidation worksheet entry subsequent to the acquisition related to the subsidiary's equipment with a higher fair value is not directly made. Instead, adjustments through the subsidiary's net income, including extra depreciation, impact the investment account over time. The correct option, in this case, is 'Investment in subsidiary Equity in subsidiary's income'.
Step-by-step explanation:
When a company uses the partial equity method of accounting for investments, it recognizes income from the investee only to the extent of dividends received. This method falls between the cost method and full equity method in terms of the level of influence the investor has over the investee. In consolidation, fair value adjustments for assets such as equipment are typically made at the date of acquisition. However, subsequent accounting for this initial fair value adjustment does not directly impact the investment account under the partial equity method.
Instead, as the subsidiary earns income and retains it or distributes dividends, the investment account on the parent's books is adjusted. When the fair value of subsidiary's equipment is greater than its book value, the parent company's share of the excess is initially recognized on the acquisition date as part of the equity method adjustment. After the acquisition date, depreciation on the increased fair value of the equipment is recognized in the investor's share of the subsidiary's net income, which in turn affects the investment account on the investor's balance sheet.
Therefore, the typical entry on the consolidation worksheet subsequent to the initial acquisition when the equipment's fair value is greater than its book value would be to adjust the investment account for the investor's share of the subsidiary's net income that includes the extra depreciation on the fair value increment of equipment. However, this is not reflected as a direct entry under the partial equity method but through the recognition of equity in subsidiary's income over time.
To answer the question directly, there is no entry made specifically for the equipment's fair value adjustment in a year subsequent to acquisition under the partial equity method. Entries such as 'Retained Earnings to Investment in Subsidiary' or 'Investment in Subsidiary to Additional Paid-in Capital' are not relevant in this context. The closest option provided that indirectly relates to handling fair value adjustments over time is:
c) Investment in subsidiary Equity in subsidiary's income