Multiple Choice: Consolidated Financial Statements Select the correct answer for each of the following:

1. Consolidated financial statements must be prepared when:

a. One company owns common stock of another.

b. When one company owns bonds or preferred stock of another.

c. When two or more companies own stock of a third company.

d. When one company controls another company.

2. The primary purpose of preparing consolidated financial statements is to:

a. Permit shareholders of subsidiary companies to know how much their companies have contributed to the profits of the consolidated entity.

b. Make it possible for short-term creditors of the subsidiary to determine how much cash is available to pay their claims.

c. Bring together the financial statements of two or more separate legal entities as if they were a single company.

d. Bring together two or more separate operating divisions of a single company.

3. The minority or noncontrolling interest:

a. Is excluded from consolidated statements.

b. Is reported when the parent owns all of the subsidiary’s capital stock.

c. Is reported when the parent does not own all of the subsidiary’s stock.

d. Is reported whenever one company owns stock in another company.

Which of the following is likely to find consolidated statements to be of little value?

a. Stockholders of the parent company.

b. Creditors of a subsidiary.

c. Long-term creditors of the parent company.

d. Both b and c.

5. Which of the following is likely to find consolidated statements to be of value?

a. Stockholders of the parent company.

b. Creditors of a subsidiary.

c. Long-term creditors of the parent company.

d. Both a and c.