=+2. The following items pertain to a parent company and its 60 percent-

owned subsidiary at year end. There are no cross-guarantees of debt between the parent and subsidiary.

Parent Subsidiary Current assets

$ 500,000

$1,000,000 Noncurrent assets

(excluding subsidiary investment)

5,000,000 2,000,000 Current liabilities 750,000 250,000 Noncurrent liabilities 2,000,000 750.000 Revenues 1.700,000 1,500,000 Expenses 1.600,000 900,000 Dividends 100,000 600,000 Required:

Explain and illustrate how consolidated reporting using the previous data can be misleading.