Chapter 12, Problem 22Q

To determine

Consolidated financial statements: When the investor company holds above 50% in the outstanding stock of the investee company, then investor is said to have control over investee. The investor company is known as parent company, and the investee company is known as subsidiary or affiliated company. In such circumstances, parent company should prepare the consolidated financial statements. Consolidated financial statements are the financial statements prepared by parent company by merging the assets and liabilities controlled by parent, and revenues and expenses of subsidiary companies as well.

To explain: The accounting treatment of the excess $8,000 $\left(\$318,000–\left(\$290,000+\$20,000\right)\right)$