Final answer:
For consolidation purposes subsequent to acquisition, an entry to eliminate the 'Investment in Fiore' against the subsidiary's 'Retained Earnings' is required. This is different from the equity method and ensures that there's no duplication of the subsidiary's earnings in the parent company's financial statements.
Step-by-step explanation:
When performing consolidation in accounting, additional worksheet entries are necessary that are not required under the equity method. Unlike the equity method, where investment in a subsidiary is adjusted for the investor's share of the subsidiary's earnings and dividends, consolidation requires a full integration of the subsidiary's balance sheet and income statement items into the parent's financial statements. If the initial value method is used, and in the year subsequent to acquisition, an entry to eliminate the 'Investment in Fiore' account against the subsidiary's 'Retained Earnings' is required. This is done to avoid double counting the subsidiary's equity that is already reflected in the parent's equity due to the acquisition.
Such an entry would typically look something like this:
- Debit: Retained Earnings (to reduce the parent company's retained earnings reflecting the subsidiary's earnings that were already recorded as income)
- Credit: Investment in Fiore (to remove the investment balance as it is now being replaced by the actual assets and liabilities of the subsidiary)
The exact amounts would depend on the parent company's percentage of ownership in the subsidiary and the retained earnings since acquisition.