[startupcfo]

MCQ #182

King, Inc., owns 70% of Simmon Co.’s outstanding common stock. King’s liabilities total $450,000, and Simmon’s liabilities total $200,000. Included in Simmon’s financial statements is a $100,000 note payable to King. What amount of total liabilities should be reported in the consolidated financial statements?

Incorrect A.
$520,000

B.
$550,000

C.
$590,000

D.
$650,000

The parent company only owns 70% of the subsidiary, so my logic is that only 70% of the subsidariy’s debt (minus the 100K that’s intra company) should be counted. The book says B is the right answer.

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Spartans92]

Anything over 50% is consolidated. In this case the 200k would need to be consolidated and any intracompany transaction is eliminated. The numbers would then be 450+200-100 = 550.

BEC- PASS

[MaLoTu]

I actually think it is C $590k. We have NCI. The $100k should be a wash because it it was +100 to parent -100 to sub. The parent is only responsible for $140 of the subs liabilities the other $60k will go to NCI, I believe.

[startupcfo]

Spartans, where did you get that anything over 50% is consolidated? I'm not saying you're wrong, but just pointing out that in REG, we learned that dividend tax deductions of 100% require 80% ownership. I know that's not apples to apples, but that might give us some insight as to what the government intends to count as full ownership.

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Yolonge]

startupcfo – thats the main difference between IRC and GAAP.

Accounting = 50%
Tax = 80%

Materials: Wiley book + Ninja MCQ

FAR - 83 (Jan 2016)
Study time: 6 weeks
BEC - 87 (April 2016)
Study time: 2 weeks
AUD - 92 (July 2016), (74 Feb 2016), (72 May 2016)
Study time: 4 (Feb) + 2 (May) + 3 (July) = 9 weeks total
REG - (70 April 2016)
Study time: 3 weeks

[Anonymous]

You do have NCI, but it appears in the Equity section as a separate line item. It doesn't affect the asset or liabilities sections.

[CPA so close, so far away]

US GAAP does this for economic substance, as opposed to a legal truth. Any ownership over 50%, all inter company transactions are ELIMINATED.

[Amortized and Energized]

Startup, remember for FAR you are going according to GAAP, not IRC. Do not use the same rules for FAR that you used for REG. Your logic in your original post isn't way off. It follows the equity method of thinking, which is what you find when someone has an ownership stake between 20 and 50%. Once somebody owns atleast 50% they are the majority stakeholder and the subsidiary is consolidated at 100% to the parent company's financials. So this is why take King's 450,000 + Simmons 200,000 and eliminate the (100,000) note between King and Simmons since King owns Simmons.

FAR - Aug 2015 (58), Feb 2016 (81)
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BEC - May 2016 (79)
AUD - Jul 2016
REG - Aug 2016

[Author]

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