**When Should Consolidated Financial Statements be Prepared?**Consolidated financial statements are crucial for presenting the overall financial status of a parent company and its subsidiaries as a single entity. Here are situations when these statements should generally be prepared:1. **Option 1: If the market value of the stock investment is significantly lower than its cost.** - This option is not generally a trigger for preparing consolidated financial statements. Typically, changes in market value are managed through impairments rather than consolidation.2. **Option 2: When a corporation owns more than 50% of the common stock of another company.** - This scenario typically necessitates the preparation of consolidated financial statements. By owning more than 50% of the common stock, the corporation has a controlling interest in the subsidiary, thus requiring consolidation.3. **Option 3: When a corporation owns more than 20% of the common stock of another company.** - While significant influence can be exerted with ownership of 20% or more, this usually leads to the equity method of accounting for investments rather than full consolidation unless other control factors are present.4. **Option 4: Only when a corporation owns 100% of the common stock of another company.** - Ownership of 100% does lead to consolidation, but it's not the only case. Control—and thus the need for consolidation—can be established with ownership of more than 50%.In conclusion, consolidated financial statements are generally prepared when a corporation owns more than 50% of the common stock of another company, indicating control over the subsidiary.

Financial statements of a company having many divisions or subsidiaries are called consolidated…

In general, consolidated financial statements should be prepared: O whenever the market value of the stock investment is significantly lower than its cost Owhen a corporation owns more than 50% of the common stock of another company when a corporation owns more than 20% of the common stock of another company Oonly when a corporation owns 100% of the common stock of another company

In general, consolidated financial statements should be prepared: O whenever the market value of the stock investment is significantly lower than its cost Owhen a corporation owns more than 50% of the common stock of another company when a corporation owns more than 20% of the common stock of another company Oonly when a corporation owns 100% of the common stock of another company

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**When Should Consolidated Financial Statements be Prepared?**

Consolidated financial statements are crucial for presenting the overall financial status of a parent company and its subsidiaries as a single entity. Here are situations when these statements should generally be prepared:

1. **Option 1: If the market value of the stock investment is significantly lower than its cost.**
- This option is not generally a trigger for preparing consolidated financial statements. Typically, changes in market value are managed through impairments rather than consolidation.

2. **Option 2: When a corporation owns more than 50% of the common stock of another company.**
- This scenario typically necessitates the preparation of consolidated financial statements. By owning more than 50% of the common stock, the corporation has a controlling interest in the subsidiary, thus requiring consolidation.

3. **Option 3: When a corporation owns more than 20% of the common stock of another company.**
- While significant influence can be exerted with ownership of 20% or more, this usually leads to the equity method of accounting for investments rather than full consolidation unless other control factors are present.

4. **Option 4: Only when a corporation owns 100% of the common stock of another company.**
- Ownership of 100% does lead to consolidation, but it's not the only case. Control—and thus the need for consolidation—can be established with ownership of more than 50%.

In conclusion, consolidated financial statements are generally prepared when a corporation owns more than 50% of the common stock of another company, indicating control over the subsidiary.

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