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Conjunction with other entities p controls z through

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Unformatted text preview: by one or more other companies that are all under common control 2-8 Indirect Control: Examples 2-9 Indirect Control: Examples In each case, P controls Z either solely or in conjunction with other entities → P controls Z through its subsidiaries 2-10 Ability to Exercise Control Sometimes, majority stockholders may not be able to exercise control even though they hold more than 50% of outstanding voting stock. Subsidiary is in legal reorganization or bankruptcy (control would rest with the courts/ court­appointed trustee) Foreign country restricts remittance of subsidiary profits to domestic parent company ↓ The unconsolidated subsidiary is reported as an intercorporate investment 2-11 Differences in Fiscal Periods Difference in the fiscal periods of a parent and subsidiary should not preclude consolidation. ↓ Solutions ↓ 1. To change the fiscal period of the subsidiary to coincide with that of the parent. 2. To adjust the financial statement data of the subsidiary each period to place the data on a basis consistent with the fiscal period of the parent. 2-12 Changing Concept of the Reporting Entity Guidance in ASC 810­10­55, requiring consolidation of all majority­owned subsidiaries, was issued to eliminate the inconsistencies found in practice until a more comprehensive standard could be issued. FASB’s consolidation project is not completed: Control: control based on majority ownership of common stock → effective control (ability to direct the policies of another entity even though majority ownership is lacking) Reporting entity: when to prepare consolidated financial statements & what entities should be included 2-13 Noncontrolling Interest (NCI) Only a controlling interest is needed for the parent to consolidate the subsidiary —not 100% interest. Shareholders of the subsidiary other than the parent → “noncontrolling or minority” shareholders. “Noncontrolling interest...
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