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28 2014 AICPA Newly Released Questions – Financial

27. CPA-08497

Bard Co. owned several subsidiaries at December 31. The following table shows each

subsidiary's total liabilities, excluding intercompany transactions, and percentage of stock owned by Bard: Subsidiary Total liabilities % owned Brock Co.

$4,000,000 70 Harlson Co.

2,000,000 48 Porter Co.

7,000,000 80 Nortin Co.

5,000,000 100

What amount should Bard include as liabilities in its consolidated balance sheet at December 31?

a. $5,000,000

b. $12,000,000

c. $16,000,000

d. $18,000,000

AICPA Difficulty Rating: Hard

Question Title: AICPA Newly Released 2014

Lecture to be assigned to: Financial 3

Topic to be assigned to: 2-Business Combinations/Consolidations

Page reference (page # and outline point): F3-10, II. Consolidated Financial Statements

ANSWER:

Choice "c" is correct. The liabilities of any company which is greater than 50% owned by Bard Co. should be included as liabilities in the consolidated financial statements at December 31. This would include the $4,000,000 liability of Brock Co., the $7,000,000 of Porter Co., and the $5,000,000 of Nortin Co., which totals to $16,000,000.

Choice "a" is incorrect. The investor should prepare consolidated financial statements with its investee when the investor has control (more than 50% ownership) of the subsidiary. Bard does not just include the liability of the 100% owned subsidiary, but should also include the liabilities of the 70% and 80% subsidiaries.

Choice "b" is incorrect. $12,000,000 is not the correct answer because it only reflects the

liabilities of the 80% owned subsidiary, Porter Co., and the 100% owned subsidiary, Nortin Co. The liability of the 70% owned subsidiary, Brock Co., should be also included.

Choice "d" is incorrect. The answer of $18,000,000 includes the liabilities of all subsidiaries

listed; however, only the liabilities of greater than 50% owned subsidiaries should be included in the consolidated financial statements.