Question

Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo. Company Esstwo owns 75 percent of Company Essthree but does not have control over Essthree. Consolidated financial statements should be prepared to report the financial status and results of operations for:

Answer 1

Answer:

Company Pea

Consolidated financial statements should be prepared to report the financial status and results of operations for:

Company Pea, Company Essone, and Company Esstwo

Explanation:

a) Data and Calculations:

Shareholding in each company:

Company Essone = 90%

Company Esstwo = 72% (0.90 * 0.80)

Company Essthree = 54% (0.72 * 0.75)

b) Based on percentage holdings in Essthree of 54%, Essthree should be consolidated.  However, since it is stated that Company Pea lacks control of Essthree and Essthree is consolidated with Esstwo, which has 72% voting rights over Essthree, there is no need to consolidate Essthree with Company Pea.