Which of the following pertaining to Consolidated Financial Statements is correct?
A) The preparation of Consolidated Financial Statements means that the companies involved cease to operate as separate legal entities.
B) The preparation of Consolidated Financial Statements is at the Parent Company's discretion.
C) When one company has control over another, Consolidated Financial Statements must be prepared for the combined entity.
D) Before preparing Consolidated Financial Statements, a subsidiary's Financial Statements prior to the date of acquisition must be restated.

Question

Quizplus · Accepted Answer

When one company has control over another, Consolidated Financial Statements must be prepared for the combined entity. This is because the controlling company has a significant economic interest in the financial performance of the subsidiary and their combined financial information provides a better understanding of their overall financial health. Option A is incorrect because companies still operate as separate legal entities after preparation of Consolidated Financial Statements. Option B is incorrect because if the subsidiary is fully consolidated, the preparation of Consolidated Financial Statements is mandatory. Option D is incorrect because only the subsidiary's Financial Statements after the date of acquisition need to be restated.

Which of the Following Pertaining to Consolidated Financial Statements Is