I don’ think this should be that hard, but I am a little confused. Example: Company 1 has a 50% interest in company 2 and company 1 is deemed to have control. When consolidating the financial statemetns what % of company 2 assets, liab., revenue, and income will company 1 show on it’s financial statements? EOC Questions 7 - 12 for this chapter make it seem as if Company 1 will record 100% of company 2 assets/liab. on it’s own balance sheet, 100% of revenue, and only 50% of net income. If that is correct, why does company 1 record 100% of company 2 revenue, but only 50% of income? (or maybe I am just misunderstanding) Thanks.
When consolidating it takes on the full assets and liabil, revenue expenses, but it subtracts minority interest before NI, so that brings net income down to the 50% mark if you know what I mean
Right, we gross it all up acting like we own 100%, but we really don’t, so back out the 50% minority interest. Net income is equal among all methods.
Ok that is what I thought…so profit margin will be lower when a company has control (shows 100% revenue, 50% of income) vs. signficant influence (0% revenue, 50% income) correct?
yep