Consolidations in Japan A few years ago, Japan's finance ministry issued a directive requiring the 600 largest Japanese com- panies to produce consolidated financial statements. The previous practice had been to use parent company-only statements. A story in Business Week said,

Financial observers hope that the move will help end the tradition-honored Japanese practice of "window dressing" the parent company financial results by shoving losses onto hapless subsidiaries, whose red ink was seldom revealed. When companies needed to show a bigger profit, they would sell their product to subsidiaries at an inflated price.... Or the parent company charged a higher rent to a subsidiary company using its building. Could a parent company follow the quoted practices and achieve window dressing in its parent- only financial statements if it used the equity method of accounting for its intercorporate invest- ments? Explain. Problems