Entry S: Debit the common stock, retained earnings, and additional paid-in-capital of the subsidiary. Credit the investment in subsidiary account that is on the books of the parent. This important entry eliminates the duplication of having the net of the subsidiary and the investment account. If we did not enter this, we would be doubling up on the investment that the parent made.

Entry A: Allocations made in connection with the subsidiary’s acquisition date fair value. It also completes the elimination of the investment in the subsidiary. Assuming we paid more than book value, we accomplish this with a debit to goodwill and any other assets that might have different values from the book value. We credit the investment in subsidiary account. (If we have any equipment that was worth less than book value, we would credit that account.)

Entry I: This entry eliminates the equity income recorded by the parent due to its ownership of the subsidiary. It is logical to remove this income, because it is recorded by the subsidiary itself. We leave the income and expenses of the subsidiary (on the books of the subsidiary) intact and only eliminate the equity income recorded by the parent. We accomplish this by debiting equity in subsidiary earnings (assuming that there was income) and crediting the investment in subsidiary account.

Entry D: We eliminate any intercompany dividends paid and treat them as simply transfers. We accomplish this with a debit to the investment in subsidiary account and a credit to the dividends paid account.

Entry E: Any excess amortization on the acquisition date fair-value adjustment need to be individually recorded.