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.

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

Transcribed Image Text:

Parent Subsidiary Current assets Noncurrent assets(excluding subsidiary investment) Current liabilities Noncurrent liabilities Revenues Expenses Dividends S500,000 $1,000,000 2,000,000 250,000 750,000 1,700,000 1,500,000 900,000 600,000 5,000,000 750,000 2,000,000 1,600,000 100,000