Pallet Corporation owns 80% of Adelt Corporation and Adelt owns 60% of Bajo Inc.Which of the following is correct?
A)Bajo should not be consolidated because noncontrolling interests hold 52%.
B)Bajo should be consolidated because the 60% of Bajo stock is held in the affiliate structure.
C)Pallet has 8% indirect ownership of Bajo.
D)Pallet has 80% indirect ownership of Bajo.

Question

Quizplus · Accepted Answer

DBajo should be consolidated because Pallet Corporation, through its 80% ownership of Adelt Corporation which owns 60% of Bajo Inc., effectively controls Bajo Inc. This control is established through the affiliate structure, making Bajo a part of the consolidated financial statements. The calculation for Pallet's indirect ownership in Bajo is 80% (Pallet's ownership of Adelt) * 60% (Adelt's ownership of Bajo) = 48%, not 8% or 80%, indicating a significant influence and control over Bajo, thus necessitating consolidation.

Pallet Corporation Owns 80% of Adelt Corporation and Adelt Owns