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Chapter 22: Question 12 (page 1306)

How should consolidated financial statements be reported this year when statements of individual companies were presented last year?

Short Answer

Expert verified

The consolidated financial statement is for the firms which own various subsidiaries and divisions. The consolidated statements should report the new entity, describe the nature and reason for the change, and the effect of change in net income, EPS should be disclosed.

Step by step solution

01

Definition of consolidated financial statement

It is defined as the financial statements of a business organization that has multiple divisions or various subsidiaries

02

Reporting to the consolidated financial statements

  1. The financial statement of previous years should be restated to show the financial information related to the new reporting entity.
  2. The financial statement of the year in which the change is made should describe the nature of the change and its reason.
  3. The effect of the change on the income, net income, and EPS should also be disclosed,

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Most popular questions from this chapter

Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.

Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2017, it was determined that salvage inventory should be valued at \(52,000. Of this amount, \)29,000 arose during the current year. How does this information affect the financial statements to be prepared at the end of 2017?

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Gordon Company started operations on January 1, 2012, and has used the FIFO method of inventory valuation since its inception. In 2018, it decides to switch to the average-cost method. You are provided with the following information.

Net Income Retained Earnings (Ending Balance) Under FIFO Under Average-Cost Under FIFO 2012 \(100,000 \) 90,000 $100,000 2013 70,000 65,000 160,000 2014 90,000 80,000 235,000 2015 120,000 130,000 340,000 2016 300,000 290,000 590,000 2017 305,000 310,000 780,000

Instructions (a) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?

(b) What is the beginning retained earnings balance at January 1, 2017, if Gordon prepares comparative financial statements starting in 2017?

(c) What is the beginning retained earnings balance at January 1, 2018, if Gordon prepares single-period financial statements for 2018?

(d) What is the net income reported by Gordon in the 2017 income statement if it prepares comparative financial statements starting with 2015?
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