Consolidated Financial Statements

Question 1

Majority Voting interest

Answer 1

greater than 50% ownership of directly or indirectly owned outstanding voting shares of another entity

Question 2

Consolidated Financial Statements

Answer 2

multiple entities reporting BS, IS, Statement of SE, SCF, as one economic entity

Question 3

Exceptions to consolidation

Answer 3

1. foreign subsidiary is controlled by foreign gov’t

2. domestic subsidiary is in bankruptcy

Question 4

Circumstances that effect Consolidation

Answer 4

1. Date consolidation occurs (at date or subsequent)
2. % ownership
3. accounting parent uses (cost, equity or other method)
4. Inter-company transaction (originates with who?)

Question 5

Variable Interest (Investment) or Subsidiary (unconsolidated)

Answer 5

reported as an investment by interest-holder/investor

Question 6

Significant influence over investee

Answer 6

20-50% of the voting stock

Question 7

Should consolidation be recorded n the books of parent or subsidiary?

Answer 7

Neither it is not recorded in the books

Question 8

Eliminations of the consolidation process

Answer 8

Intercompany investment (always), intercompany receivables/payables, intercompany revs/expenses

Question 9

Non-controlling interest

Answer 9

is the portion not acquired when parent comp owns more than 50% but less than 100% ( still consolidated)

Question 10

IFRS Differences

Answer 10

1. Control can be obtained with less than 50% ownership in certain circumstances (potential rights or decision making rights)
2. does not define Variable interest entities but has similar concept with special purpose entities
3. accounting policies of P and S have to align (ex: depreciation methods)
4. accounting periods for P and S must have the same end date
5. Parent has choice at acquisition date whether or not to assign goodwill to NCI

Question 11

Combined Financial Statements

Answer 11

1. Common control - one individual owns two or more entities
2. Common management - two or more entities under common management
3. Unconsolidated subsidiaries - combine results of 2 or more subsidiaries

Question 12

Conditions of primary beneficiary of a Variable Interest Entity

Answer 12

1. Power criterion - power to direct activities of VIE that significantly impact economic performance
2. Risk/Reward criterion- has obligation to absorb losses and rights to benefits of VIE