Consolidated Financial Statements

Question 1

Types of Questions on the CPA Exam?

Answer 1

• Terminology, definitions, and concepts
• Quantitative
• TBS

Question 2

What is the objective of consolidated financial statements?

Answer 2

Present the financial statements of entities under common control as one economic entity

Question 3

When do you have control?

Answer 3

1) VIE- When a company is the primary beneficiary of a variable interest entity (there is no voting stock)
2) Legal Control (most common)- When an entity has over 50% ownership of a company’s stock.

Question 4

Why do we consolidate?

Answer 4

Because combined statements are more informative.

Question 5

What are the exceptions to control?

Answer 5

There is no effective control when:

• Foreign subsidiary is controlled by a foreign government
• Domestic subsidiary in bankruptcy

Question 6

Circumstances that Effect Consolidation Process?

Answer 6

• Date the consolidation occurs
• Percentage of ownership (less than or at 100% ownership)
• Accounting (cost or equity method)

Question 7

What methods are allowed for consolidation?

Answer 7

1) Equity Method
2) Cost Method
3) Any other method it chooses (Acquisition Method, Pooling of Interests)