Waite Co. is a wholly-earned subsidiary of Star Ltd. During the year, Waite earned net income of $65,000. Star recorded this income on its books using the equity method. What elimination entry does Star have to make in the consolidation process with respect to this income?A) DR Equity earnings in Waite 65 , 000 CR Retained earnings 65 , 000 \begin{array} { | c | c | } \hline ext { DR Equity earnings in Waite } & 65,000 \\hline ext { CR Retained earnings } & 65,000 \\hline\end{array} DR Equity earnings in Waite CR Retained earnings 65 , 000 65 , 000 B) DR Equity earnings in Waite 65 , 000 CR Investment in Waite 65 , 000 \begin{array} { | c | c | } \hline ext { DR Equity earnings in Waite } & 65,000 \\hline ext { CR Investment in Waite } & 65,000 \\hline\end{array} DR Equity earnings in Waite CR Investment in Waite 65 , 000 65 , 000 C) DR Investment in Waite 65 , 000 CR Equity earnings in Waite 65 , 000 \begin{array} { | l | c | } \hline ext { DR Investment in Waite } & 65,000 \\hline ext { CR Equity earnings in Waite } & 65,000 \\hline\end{array} DR Investment in Waite CR Equity earnings in Waite 65 , 000 65 , 000 D) No entry is required under the equity method.

Question

Waite Co. is a wholly-earned subsidiary of Star Ltd. During the year, Waite earned net income of $65,000. Star recorded this income on its books using the equity method. What elimination entry does Star have to make in the consolidation process with respect to this income?A)     DR Equity earnings in Waite  65 , 000  CR Retained earnings  65 , 000 \begin{array} { | c | c | } \hline 	ext { DR Equity earnings in Waite }  &  65,000 \\hline 	ext { CR Retained earnings }  &  65,000 \\hline\end{array}  DR Equity earnings in Waite   CR Retained earnings  ​ 65 , 000 65 , 000 ​ ​ B)     DR Equity earnings in Waite  65 , 000  CR Investment in Waite  65 , 000 \begin{array} { | c | c | } \hline 	ext { DR Equity earnings in Waite }  &  65,000 \\hline 	ext { CR Investment in Waite }  &  65,000 \\hline\end{array}  DR Equity earnings in Waite   CR Investment in Waite  ​ 65 , 000 65 , 000 ​ ​ C)     DR Investment in Waite  65 , 000  CR Equity earnings in Waite  65 , 000 \begin{array} { | l | c | } \hline 	ext { DR Investment in Waite }  &  65,000 \\hline 	ext { CR Equity earnings in Waite }  &  65,000 \\hline\end{array}  DR Investment in Waite   CR Equity earnings in Waite  ​ 65 , 000 65 , 000 ​ ​ D) No entry is required under the equity method.

Mahsa Iranipour · Accepted Answer

Final Answer : C, Explanation :  Under the equity method, the investor records its share of the subsidiary's net income. In the consolidation process, the parent company needs to eliminate any intercompany transactions or balances to avoid double-counting. Since Waite is a wholly-owned subsidiary, all of its net income belongs to Star, and so no portion of it needs to be eliminated. Therefore, the answer is C, which states that no elimination entry is required.

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