Consolidated financial statements are prepared when one company has:
A)Accounted for the investment using the equity method.
B)Accounted for the investment as available-for-sale securities.
C)Control over another company.
D)None of these is correct.

Question

Quizplus · Accepted Answer

Consolidated financial statements are prepared when one company has control over another company. This means that the controlling company (the parent company) has the power to direct the financial and operating policies of the other company (the subsidiary). Control is usually achieved when the parent company owns more than 50% of the voting shares of the subsidiary. The purpose of preparing consolidated financial statements is to provide a complete picture of the financial performance and position of the group as a whole, rather than treating each company separately. The equity method and available-for-sale securities accounting methods do not involve consolidation.

Consolidated Financial Statements Are Prepared When One Company Has