19A1 - Advanced Fin. Acc. - Intro. to Consolidation of FS

Consolidated financial statements are typically prepared when one company has:

• accounted for its investment in another company by the equity method.

• accounted for its investment in another company by the cost method.

• significant influence over the operating and financial policies of another company.

• the controlling financial interest in another company.

A 75 percent-owned subsidiary should not be consolidated when:

• its operations are dissimilar from those of the parent company.

• control of the subsidiary does not lie with the parent company.

• there is a dominant noncontrolling interest in the subsidiary.

• management feels that consolidation would not provide the most meaningful financial statements.

When a parent–subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of:

• reliability.

• materiality.

• legal entity.

• economic entity.

Ownership of 51 percent of the outstanding voting stock of a company would usually result in a (a)  

Parent-company and consolidated financial statement amounts would not be the same for (a)   in consolidated subsidiaries.