Mention the reason why consolidated net income equal to the net income reported by
the parent if the parent employs the accounting equity method.
Explanation of Solution
Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.
Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through
Consolidated net income is the sum of the parent company's net income exclusive of income from subsidiaries acknowledged in its specific financial statements plus its subsidiaries' net income assessed excluding the unrealized gain in inventories, intra-group income, etc. When the parent utilizes the accounting equity method, it acknowledges the subsidiary's equity income, less the depreciation and amortization of the [A] AAP net assets, on its income statement in the equity income account. This Equity Income account is removed during the consolidation process and substituted with the revenues and expenses to which it refers. Net income remains stable as we substitute the net income of the subsidiary (reported in Equity Income) with its revenues and expenses.
Want to see more full solutions like this?
Chapter 3 Solutions
ADVANCED ACCOUNTING
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education