# Quiz 7: Consolidated Financial Statements - Ownership Patterns and Income Taxes

Consolidated net income: The consolidated net income is computed after adjusting the excess fair value amortizations and any intra-entity transfers. The income for holding company is computed after taking into consideration the share of income in each subsidiary. 1. Calculate T's total income: T owns 70% of voting interest in B. Therefore, T's total income is . 2. Calculate S's total income : S owns 90% of voting interest in T. Therefore, S's total income is . 3. Calculate total entity net income : Therefore, Total entity net income is . 4. Calculate Net income attributable to non-controlling interest : B's income Non-controlling interest is 30% (100%-70%). T's income Non-controlling interest in T is 10% (100%-90%). Net income attributable to Non-controlling interest is \$81,500. Therefore, Net income attributable to non-controlling interest is . 5. Calculate difference between S's net income and total entity net income for three companies less non-controlling interest as shown below: Therefore, difference between S's net income and Total entity net income for three companies less non-controlling interest is .

This question requires knowledge and application of concepts related to solving father-son-grandson relationship. Father-son-grandson denotes is any corporation is when the father company owns the son company and the grandson company owns other companies. The father company indirectly owns the same companies as the grandson company owns due to owning stocks in the son company, which have a controlling interests in the grandson company. Step 1. Read the question. Step 2. Consider the choices. The correct option is d a. Choice D is the best choice because a company in this position must identify all the equity income increasing from all their subsidiaries, before the firm can compute their own total income. b. Choice A is not a good answer is because the father company must first recognize all equity income accruing from all their subsidiaries. c. Choice B is not a good answer because the company has realized income has effect on the income of other companies within the organization, even if they own the company indirectly. d. Choice C is not a good answer because in the father-son-grandson configuration does require consolidation even if they do not own all the shares. The father company does not require to own stocks in the grandson company as they control the son company and there for indirectly owns the company that the grandson owns.

A father son grandson relationship is a specific type of ownership configuration often encountered in business combinations. The parent possesses the stock of one or more companies. At least one of these subsidiaries holds a majority of the voting stock of its own subsidiary. Each subsidiary controls other subsidiaries with the chain of ownership going on indefinitely. The parent actually holds control over all of the companies within the business combination despite having direct ownership in only its own subsidiaries.

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