Which of the following statements about consolidated financial statements is true? Group of answer choicesThe subsidiaries of corporations cease to be separate legal entities when their parent corporations use consolidated financial statements.Generally, most of the voting stock of a subsidiary should be owned by the holding company or by the same interests if the associated companies’ financial statements are to be combined.Consolidated financial statements are required of all companies in the United States.Consolidated financial statements make footnotes unnecessary.
Question
Which of the following statements about consolidated financial statements is true? Group of answer choicesThe subsidiaries of corporations cease to be separate legal entities when their parent corporations use consolidated financial statements.Generally, most of the voting stock of a subsidiary should be owned by the holding company or by the same interests if the associated companies’ financial statements are to be combined.Consolidated financial statements are required of all companies in the United States.Consolidated financial statements make footnotes unnecessary.
Solution
The correct statement about consolidated financial statements is: "Generally, most of the voting stock of a subsidiary should be owned by the holding company or by the same interests if the associated companies’ financial statements are to be combined."
This is because consolidated financial statements are used when a parent company owns a majority stake in a subsidiary, and they combine the financial information of the parent company and its subsidiaries into one comprehensive report.
The other statements are not true. Subsidiaries do not cease to be separate legal entities when their parent corporations use consolidated financial statements. Consolidated financial statements are not required of all companies in the United States, only those with subsidiaries. And consolidated financial statements do not make footnotes
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The Corporations Act 2001 requires that the financial statements (or consolidated financial statements) and notes of a company, registered scheme of disclosing entity for a financial year: a. Are true and correct in every material aspect. b. Give a fair presentation of the financial position and performance of the entity (or consolidated entity). c. Give a true and fair view of the financial position and performance of the entity (or consolidated entity). d. Give an accurate view of the financial position and performance of the entity (or consolidated entity).
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