Create, Inc., a domestic corporation, owns 100% of Vinyl, Ltd., a foreign corporation and Digital, Inc., a domestic corporation. Create also owns 12% of Record, Inc., a domestic corporation. Create receives no distributions from any of these corporations. Which of these entities' net income is included in Create's income statement for current- year financial reporting purposes?
A) Create, Vinyl, and Digital.
B) Create, Vinyl, and Record.
C) Create, Digital, and Record.
D) Create, Vinyl, Digital, and Record.

Question

Quizplus · Accepted Answer

For financial reporting purposes, a parent company like Create, Inc. must consolidate the financial statements of all entities it controls. Control is typically indicated by ownership of more than 50% of the voting shares of another entity, which is the case with Vinyl, Ltd., and Digital, Inc. However, since Create owns only 12% of Record, Inc., it does not have control, and therefore, Record's net income is not included in Create's consolidated income statement.