FAR 3-5 Consolidated Financial Statements

Question 1

Consolidated Financial Statements:

Control is over how much %?

Answer 1

over 50%

Question 2

Acquisition Method - Fundamental Principles:

Recognition Principle?

Answer 2

The acquirer recognizes all of the subsidiary’s assets and liabilities, including identifiable intangible assets.

Question 3

Measurement Principle?

Answer 3

The acquirer measures each recognized asset and liability and any noncontrolling interest at its acquisition date fair value.

Question 4

Consolidated financial statements are prepared when a _______________ relationship has been formed.

Answer 4

parent-subsidiary

An investor is considered to have PARENT status when CONTROL over an investee is established or more than 50% of the voting stock of the investee has been acquired.

Question 5

Under U.S. GAAP, all majority-owned subsidiaries (domestic and foreign) must be consolidated except when significant doubt exists regarding the parent’s ability to control the subsidiary, such as when: (2)

Answer 5

1. The subsidiary is in legal reorganization, or

2. Bankruptcy and/or the subsidiary operates under severe foreign restrictions.