A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary.The parent has control over the subsidiary.Which of the following statements is correct?
A)The parent corporation must prepare consolidated financial statements for the economic entity.
B)The parent corporation must use the fair value method.
C)The parent company may use the equity method but the subsidiary cannot be consolidated.
D)The parent company can use the equity method or the fair value/cost method.

Question

Quizplus · Accepted Answer

If the parent corporation has control over the subsidiary, then they must prepare consolidated financial statements for the economic entity. Consolidation involves adding the financial statements of the parent and subsidiary together as if they were one company. Therefore, choice A is correct. Choices B, C, and D are incorrect. The fair value method and equity method relate to accounting for investments in the subsidiary, but do not address the preparation of consolidated financial statements.

A Parent Corporation Owns 55% of the Outstanding Voting Common