Each individual company will account for dividends paid / received in the “normal” way

When it comes to consolidation, we simply ignore the dividends from subsidiaries and associates when calculating the consolidated income statement line “Investment income” – simply do not include the investment income that is paid within the group. But we do not change the retained earnings figures for any of those companies for the purposes of calculating working W3 Consolidated Retained earnings (the top line of working W3 is “per question” and there is no accounting / cancellation of dividends that have been paid. There is not even any effect on working W3 for dividends that are recorded as still payable / receivable even though there is an element of cancellation of Receivables against Payables for dividends declared but not yet paid)

The consolidated statement of income is merely an exercise in presentation of the consolidated results. We already know the figure for retained earnings for the statement of financial position from working W3

You ask where you are going wrong in your thinking. These adjustments are for presentation purposes only. They are not something for the application of double entry principles of debits and credits. No adjustments will be put through any of the companies’ accounts / records. It’s merely an exercise in tidying up so that we don’t show dividends receivable / received by a parent and, at the same time, show an amount payable / paid by ourselves to, effectively, ourselves.

They are cosmetic adjustments, not adjustments for recording within accounting records

Is that any better?