Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 3, Problem 3.1.2E
To determine
Introduction:
The consolidated financial statements are the statements which are prepared for providing a consolidated view of financial activities of the company having subsidiary companies.
The correct option for the preparation of consolidated financial statements when one company has controlling interest.
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Choose the correct. A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?a. It is a relatively easy method to apply.b. Operating results appearing on the parent’s financial records reflect consolidated totals.c. GAAP now requires the use of this particular method for internal reporting purposes.d. Consolidation is not required when the parent uses the equity method.
When we are preparing consolidated financial statements, will we have to eliminate the parent entity's investment in the subsidiaries each year as part of our consolidation entries, or will we have to do the elimination only in the first year following acquisition, but only thereafter? Why?
a.Which of the following statement/s regarding the method of consolidation is true:
(1) Subsidiaries are consolidated in full
(2) Associates are equity accounted
Select one:
a.
Neither statement
b.
Statement (1) only
c.
Both statements
d.
Statement (2)
Q2. Which of the following is a characteristic of the cost method of accounting for subsidiary operations?
Select one:
a.
Parent company net income equals consolidated net income.
b.
More working paper eliminations are required than for the equity method of accounting.
c.
Consolidated amounts differ from the comparable amounts under the equity method of accounting.
d.
None of the above
Q3.
How soon does goodwill acquired in a business combination need to be tested after an acquisition?
Select one:
a.
The year after acquisition
b.
The year of acquisition
c.
Two years after acquisition
d.
None of the above
Chapter 3 Solutions
Advanced Financial Accounting
Ch. 3 - What is the basic idea underlying the preparation...Ch. 3 - How might consolidated statements help an investor...Ch. 3 - Prob. 3.3QCh. 3 - Prob. 3.4QCh. 3 - Prob. 3.5QCh. 3 - Prob. 3.6QCh. 3 - Prob. 3.7QCh. 3 - Prob. 3.8QCh. 3 - Prob. 3.9QCh. 3 - Prob. 3.10Q
Ch. 3 - Prob. 3.11QCh. 3 - Prob. 3.12QCh. 3 - What is meant by indirect control? Give an...Ch. 3 - Prob. 3.14QCh. 3 - Prob. 3.15QCh. 3 - Prob. 3.16QCh. 3 - Prob. 3.17QCh. 3 - Prob. 3.18QCh. 3 - Prob. 3.1CCh. 3 - Prob. 3.2CCh. 3 - Prob. 3.1.1ECh. 3 - Prob. 3.1.2ECh. 3 - Prob. 3.1.3ECh. 3 - Prob. 3.1.4ECh. 3 - Multiple-Choice Question on Variable Interest...Ch. 3 - Multiple-Choice Question on Variable Interest...Ch. 3 - Prob. 3.2.3ECh. 3 - Prob. 3.2.4ECh. 3 - Prob. 3.3.1ECh. 3 - Prob. 3.3.2ECh. 3 - Prob. 3.3.3ECh. 3 - Prob. 3.4.1ECh. 3 - Prob. 3.4.2ECh. 3 - Prob. 3.4.3ECh. 3 - Prob. 3.4.4ECh. 3 - Balance Sheet Consolidation On January 1, 20X3,...Ch. 3 - Prob. 3.6ECh. 3 - Prob. 3.7ECh. 3 - Prob. 3.8ECh. 3 - Prob. 3.9ECh. 3 - Reporting for a Variable Interest Entity Gamble...Ch. 3 - Prob. 3.11ECh. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Prob. 3.15ECh. 3 - Prob. 3.16ECh. 3 - Prob. 3.17ECh. 3 - Prob. 3.18ECh. 3 - Prob. 3.19.1PCh. 3 - Prob. 3.19.2PCh. 3 - Prob. 3.20PCh. 3 - Prob. 3.21PCh. 3 - Prob. 3.22PCh. 3 - Prob. 3.23PCh. 3 - Prob. 3.24PCh. 3 - Prob. 3.25PCh. 3 - Prob. 3.26PCh. 3 - Prob. 3.27PCh. 3 - Prob. 3.28PCh. 3 - Prob. 3.29PCh. 3 - Consolidated Worksheet at End of the First Year of...Ch. 3 - Prob. 3.31P
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Why would a company implement this upon acquisitions: "All significant intercompany transactions and balances between Group enterprises are eliminated on combination." I would like to know the possible reasons for this statement in a companies annual report.arrow_forwardWhich statement is incorrect concerning the preparation of consolidated financial statements? A. When the reporting dates of the parent and a subsidiary are different, the difference shall be no more than six months. B. The financial statements of the parent and its subsidiaries shall be consolidated on a line by line basis nu adding together like items of assets, liabilities, equity, income and expenses. C. Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. D. Intragroup dividends shall be eliminated in full.arrow_forwardWhich TWO of the following statements are correct when preparing consolidated financial statements?i) A subsidiary cannot be consolidated unless it prepares financial statements to the same reporting date as the parent.ii) A subsidiary with a different reporting date may prepare additional statements up to the group reporting date for consolidation purposesiii) A subsidiary’s financial statements can be included in the consolidation of the gap between the parent and the subsidiary reporting dates is five months or less.arrow_forward
- Statement 1: The preparation of consolidated financial statements after acquisition is materially different concept from preparing them in the acquisition date in the sense that reciprocal accounts are eliminated and remaining balances are combined. Statement 2: All revenues and expenses of individual consolidating companies arising from transactions and actions with affiliated companies are included in the consolidated financial statements. a. Only Statement 1 is correct b. Both statements are correct c. Only Statement 2 is correct d. Both statements are incorrectarrow_forwardWhich of the following is not true with regard to a business combination accomplished in the form of a stock acquisition? a. Two companies remain in existence after the combination b. A parent-subsidiary relationship is said to exist c. Consolidated financial statements are normally required d. All of the above statements are truearrow_forwardIn an asset acquisition: a. A consolidation must be prepared whenever financial statements are issued. b. The acquiring company deals only with existing shareholders, not the company itself. c. The assets and liabilities are recorded by the acquiring company at their book values. d. Statements for the single combined entity are produced automatically and no consolidation process is needed.arrow_forward
- A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision? It is a relatively easy method to apply. Operating results appearing on the parent’s financial records reflect consolidated totals. GAAP now requires the use of this particular method for internal reporting purposes. Consolidation is not required when the parent uses the initial value method.arrow_forwardS1: The preparation of consolidated financial statements after acquisition is materially different concept from preparing them in the acquisition date in the sense that reciprocal accounts are eliminated and remaining balances are combined. S2: All revenues and expenses of individual consolidating companies arising from transactions and actions with affiliated companies are included in the consolidated financial statements. A. Only S2 is correct B. Both statements are incorrect C. Only S1 is correct D. Both statements are correctarrow_forwardOn January 1, Year 5, Pic Company acquired 7,500 ordinary shares of Sic Company for $708,000. On January 1, Year 6, Pic Company acquired an additional 2,000 ordinary shares of Sic Company for $212,000. On January 1, Year 5, the shareholders' equity of Sic was as follows: Ordinary shares (10,000 no par value shares issued) Retained earnings $200,000 303,000 $503,000 The following are the statements of retained earnings for the two companies for Years 5 and 6: Pic Year 5 Year 5 Retained earnings, beginning of year Profit Dividends Retained earnings, end of year $ 506,000 165,000 (100,000) $ 571,000 Year 6 $ 571,000 160,500 (120,000) $ 611,500 $ 303,000 118,500 (90,000) $ 331,500 Sic Year 6 $ 331,500 156,500 (90,000) $ 398,000arrow_forward
- A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision? It is a relatively easy method to apply. Operating results appearing on the parent’s financial records reflect consolidated totals. GAAP now requires the use of this particular method for internal reporting purposes. Consolidation is not required when the parent uses the equity method.arrow_forwardA company has included in its consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidation last year. This results in a. an accounting change that should be reported prospectively. b. an accounting change that should be reported by restating the financial statements of all prior periods presented. c. a correction of an error. d. neither an accounting change nor a correction of an error.arrow_forward*ABC Company, a global conglomerate, has multiple subsidiaries operating in different countries. As part of its financial reporting, the company needs to consolidate its financial statements to present a comprehensive view of its overall financial performance and position. Which of the following statements regarding the consolidation process is correct? A. In the consolidation process, the parent company's financial statements are combined with the financial statements of all its subsidiaries without any adjustments or eliminations. B. The consolidation process involves aggregating the revenues and expenses of the parent company and its subsidiaries, but intercompany transactions and balances are not eliminated. C. Under the equity method of consolidation, the parent company includes the subsidiary's revenues and expenses in its financial statements, but the subsidiary's assets and liabilities are not combined with the parent's. D. In the consolidation process, goodwill is…arrow_forward
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