Intro to Consolidated Financial Statements

Question 1

True or False: An Unconsolidated subsidiary is an investee for which the investor owns less than 100% of the investee’s voting common stock.

Answer 1

False

Question 2

True or False: A majority owned subsidiary that is not consolidated would be reported in the parent’s consolidated financial statemetns as an investment.

Answer 2

True

Question 3

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct?

A. Consolidated financial statements should only be prepared by Star and Not by Sun?
B. Consolidated financial statements should be prepared for both Star and Sun?

Answer 3

A . Consolidated financial statements should only be prepared by Star and not by Sun.

Star has an investment in and control of Sun, which is the basis for preparing consolidated statements; Sun does not have an investment in, or control of, Star. Thus, there is no basis for Sun to prepare consolidated statements.

Question 4

True or False: The choice of methods a parent uses on its books to account for its investment in a subsidiary will affect both the consolidating process and the consolidated financial statemetnts?

Answer 4

False; it will only affect the consolidating process.

The final consolidated financial statements will be the same regardless of the method used by the parent on its books; only the details of the process of developing those statements will be different. The primary difference will be in the nature of the investment eliminating entry on the worksheet.

Question 5

What level of voting ownership is normally assumed to convey significant influence over an investee?

Answer 5

20-50%

Question 6

True or false: The results of the consolidating process are recorded in teh books of the parent and subsidiary?

Answer 6

False: The consolidation process takes place on worksheets and schedules, and the results are presented in the form of consolidated financial statemetns.

Question 7

If a company has the following investments in separate entities. Which one would be consolidated with the company’s financial statements?

40% ownership of voting stock in company A
60% ownership of voting stock in company B
100% ownership of voting stock in company C

Answer 7

Company B and C because the ownership in voting stock is over 50%

Question 8

Under GAAP, does a company have a choice to file a parent only statement, separate parent and subsidiary statements or consolidated statements?

Answer 8

only consolidated financial statements can be issues as the primary form of public disclosure for a parent and its subsidiaries

Question 9

Will intercompany eliminations be required for investements, receivables/payables, and revenues/expenses?

Answer 9

No, only for investments and only for receivables/payables or revenues/expenses if there have been intercompany transactions.

Question 10

What is a post-combination characteristic of a legal aquisitions?

Answer 10

The combining firms remain separate legal entities

Question 11

Is the consolidating process carried out on the books of the parent entity?

Answer 11

No, the consolidating process takes place on worksheets and schedules that are separate from any set of books.

Question 12

When there is a legal aquisition can transactions between afficiliated entities originate with both the parent company and the subsidiary company.

Answer 12

Yes