[von2015]

Penn Inc. a manufacturing company, owns 75% of the common stock of Sell Inc, an investment company. Sell owns 60% of the common stock of Vane Inc, an insurance company. In Penn’s consolidated financial statements, should consolidation accounting or equity method accounting be used for Sell and Vane?

a. Equity method for both Sell and Vane.

b. Consolidation used for both Sell and Vane.

c. Equity method used for Sell and consolidation used for Vane.

d. Consolidation used for Sell and equity method used for Vane.

The answer is b and I understand why. I have a hypothetical question – What happens if Sell owns less than 20% of Vane and thus have to use equity method. Will the answer be d? Penn will account for Sell using consolidation and account for Vane using the equity method? Was just curious if I ever come across this on the exam.

[Oimie]

Interesting! I've never came across that concept in my review before. So in this situation would Penn own 75% of the 60%? And is 75% of the 40% the noncontrolling interest? And how are they consolidated?

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Author]

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