Chapter 3 - An Introduction to Consolidated Financial Statements

Question 1

When does a corporation become a subsidiary of another corporation?

Answer 1

When another corporation acquires a majority of the voting stock.

Question 2

All assets and liabilities of subsidiary are reported at fair value (100%) based on the price paid for the controlling interest, even when part acquires less than 100%

Answer 2

Acquisition Method

Question 3

Non-controlling Interest on B/S

Answer 3

Should be displayed and labeled as a separate component of SE on consolidated B/S

Question 4

Income attributable to non-controlling interest is recorded as a deduction from _________________

Answer 4

consolidated net income

Question 5

In all cases we eliminate the amount of the subsidiary investment and ________ accounts of the subsidiary

Answer 5

equity

Question 6

First find __________ ________ _______ when solving for actual fair value of firm purchased.

Answer 6

implied fair value - Investment Cost/Ownership %

Question 7

Non-controlling Interest Amount

Answer 7

Non-controlling interest % * Implied Fair Value

Question 8

Parent-company and consolidated financial statement amounts would not be the same for ______________

Answer 8

Investments in consolidated subsidiaries

Question 9

FASB’s primary motivation for requiring consolidation of all majority-owned subsidiaries was to ____________

Answer 9

prevent the use of off-balance sheet financing.