Consolidated financial statements are appropriate even without a majority ownership if which of the following exists:
A) the subsidiary has the right to appoint members of the parent company's board of directors.
B) the parent company has the right to appoint a majority of the members of the subsidiary's board of directors through a large minority voting interest.
C) the subsidiary owns a large minority voting interest in the parent company.
D) the parent company has an ability to assume the role of general partner in a limited partnership with the approval of the subsidiary's board of directors.

Question

Quizplus · Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), if the parent company has the right to appoint a majority of the members of the subsidiary's board of directors through a large minority voting interest, it has effective control over the subsidiary and should consolidate the subsidiary's financial statements with its own. This is known as the "voting interest model." Therefore, even without a majority ownership, the consolidated financial statements are appropriate. The other options (A, C, and D) do not provide sufficient evidence of effective control over the subsidiary to require consolidation.

Consolidated Financial Statements Are Appropriate Even Without a Majority Ownership